Similar to requirements imposed on condominium associations, this year the Washington legislature passed a new law imposing reserve study and funding requirements on larger homeowner associations in which the members are required to maintain property that is commonly owned and used. Larger homeowner associations include those (1) with significant assets, (2) in which the cost of the reserve study does not exceed 5 percent of the association’s budget, or (3) with more than ten homes. “Significant assets” means that the current replacement value of the components in the reserve study is 75 percent or more of the association’s budget. All homeowner associations, whether incorporated or not, that meet those criteria must prepare a reserve study, fund a reserve account, and update the study unless doing so would impose an unreasonable hardship.
The components in a reserve study include any common amenity whose cost of maintenance, repair, or replacement is infrequent, significant, and impractical to include in an annual budget, such as a major road improvement or major upgrade of a stormwater facility. The new law states that a reserve study must include, among other things, the component list, the remaining useful life of the component, the major maintenance, repair, or replacement cost of the component, the reserve account balance, and any anticipated special assessments to be charged to homeowners. The law also imposes an obligation on boards of directors to include in the summary of the budget items related to the reserve study and reserve account. At least every three years, the association must update the reserve study, and if not, 35 percent or more of the voting membership can demand of the board that one be prepared. The legislature also provided immunity for officers, directors, and their advisers from monetary damages for failing to establish a reserve account, have a current reserve study, or make the required disclosures. The new law goes into effect on January 1, 2012.