New Reserve Disclosures for Homeowner Associations

RESERVE DISCLOSURES

Starting July 1, 2005, boards must use a new format in their annual disclosure of reserve funding.

Disclosure Date & Format. The disclosure must be done not less than 30 days nor more than 90 days prior to the beginning of the association's fiscal year. This is an improvement over the old requirement that had a 15-day window for making the disclosure. Boards must use a standardized disclosure format. Civ. §1365.2.5. Professional reserve companies should be incorporating the new requirements into their reports.

Disclaimer. The new disclosures require boards to peer into the future and answer "yes" or "no" as to whether the association will have sufficient funds at the end of each future year to meet the association's obligations to replace major components over the next 30 years. The Legislature meant well but it created potential liability for boards each time they answer the question. Accurate long range projections are extremely difficult, if not impossible. To avoid being accused of "misleading" the membership with "inaccurate" projections, boards should include a disclaimer such as:

The information contained in this disclosure is a PROJECTION ONLY. Because the reserve study is a projection, the estimated lives and costs of components will likely change over time depending on a variety of factors such as (i) future inflation rates, (ii) levels of maintenance applied by future boards, unknown defects in materials that may lead to premature failures, etc. As a result, some components may experience longer lives while others will experience premature failures. Some components may cost less less at the time of replacement while others may cost more.

A sample form can be found at Davis-Stirling.com

Reasonable Fee. Associations may charge a reasonable fee for copies of the report. Boards may also make documents available in electronic form.

Very truly yours,


Adrian J. Adams, Esq.
Adams & AuCoin, LLP

Adrian Adams may be contacted at www.adams-aucoin.com.