Study Required. All associations, regardless of size, are required to prepare a reserve study.
Civil Code §1365(a). There are three exceptions:
No Common Area. No study is required if an association does not have "common areas" as defined in Civil Code §1351. (See Civil Code §1365.5(h)).
Commercial Developments. Commercial and industrial common interest developments are exempt from reserve requirements. Civil Code §1373.
- Replacement Cost. If the total replacement costs are less than 50% of the annual gross budget. Civil Code §1365.5(e).
Every Three Years. At least once every three years, the board of directors shall cause to be conducted a reasonably competent and diligent visual inspection of the accessible areas of the major components that the association is obligated to repair, replace, restore, or maintain.
Civil Code §1365.5(e). A reserve study is not actually a "study" of the roofs, boilers, streets, etc. Instead, it is a list of the major common area
components with an estimate of their remaining useful life.
Annual Updates. The allocation of reserve items is not written in stone. Allocations are only projections and subject to revision annually as roofs, boilers, etc. wear out at their own rates. As a result, boards must review the association's reserve study, or cause it to be reviewed, annually and shall consider and implement appropriate adjustments to the reserve account requirements.
Civil Code §1365.5(e).
FHA Loans. Reserves and reserve studies are also
required for FHA backed mortgages.
Small Associations. Small residential associations, even as small as two units, must perform reserve studies if they have common areas--unless the total replacement costs are less than 50% of the annual gross budget.
Civil Code §1365.5(e).