How Frequently Should The Board Conduct a Reserve Study For Your Building?

You can learn more about the modifications required to keep your apartment complex running by ordering a reserve study. A reserve study should happen every three to five years.

What Exactly is a Reserve Study?
The elevator, boiler, sprinkler, façade, and roof will often be among the systems evaluated for a reserve study. The research enables you to prepare in advance, and determine how you will pay for the required upgrades. It can also assist you in avoiding levying significant special assessments.

The time frame can decrease to every two to three years. This is a result of new municipal requirements that demand mechanical, structural, and emissions compliance that have begun to emerge.

How Vital is a Reserve Study?
Co-op and condo boards have a fiduciary duty to the owners to take care of the building. Regardless of the fact that the board may be keen to postpone the completion of a reserve study. The failure to do a reserve study every three years has the effect of leaving mechanical and structural systems unchecked for deterioration. Which frequently leads to much more expensive repair expenditures. Dealing with an emergency repair is always more expensive than planning one.

There is no longer a reserve study exception to this obligation, therefore boards should be aware that Fannie Mae, one of the government-backed companies that acquire loans from banks, has the authority to place buildings on a “do not lend list” if they fail to fill their reserve fund on a yearly basis.

Buildings could conduct a capital reserve study in place of the reserve fund line. Fannie Mae previously required them to allocate 10% of their operational budget to each year. That’s not an option anymore. Last year, Fannie Mae revised its lending policies to take away this flexibility. Fannie Mae presently considers buildings “unavailable for lending” if they lack a 10 percent reserve line item.

Co-Op Buyers Will Not Have Access to Reserve Studies

In a co-op that you buy, the bulk of the audited financial documents will state that the board hasn’t done a reserve study for potential future capital needs.

The board may make the reserve study available to shareholders as new information becomes available. They will not give specific figures that are almost certain to alter over time. You want to see several months’ worth of maintenance or common charges available for repairs. when you look at the building’s financial statement.

How Do Capital Reserve Studies Work?

A survey of the facility would be done by an architect or engineer. They would also estimate the cost of any necessary repairs and upgrades and evaluate whether it would be necessary for three, five, or 10 years.