To Reserve or Not to Reserve | Browning Reserve Group

by Robert W. Browning, PCAM, RS

That is the question. Although I share a name with a literary genius, it ends there. I am certainly no Shakespeare! But this line from the famous soliloquy, adapted for my purposes, does help highlight an emerging topic among community association professionals…from an association’s inception, how expansive should the reserve inventory component list be?

For example,

Should the reserve component list include all major items that will be replaced during the life of the community?
Should the list include only those items that have a Useful Life of 30 years or less?

As we move into spring, and with a fresh start in mind, let’s look back on how major components get included into the reserve study.

What is a Reserve Component?

For a component to be included in the reserve study, the CAI national standards postulate a four-step test:

Association responsibility
Limited useful life expectancies
Predictable remaining life expectancies
Above a minimum threshold cost

In 2016, CAI updated the National Standards for Reserve Studies and this is available at the CAI web site.

In California, the Davis Stirling Act includes the following general provisions when dealing with reserve components in the study (See Civil Code Sections 5550 – 5570 for the complete definition and more on reserve studies):

A reserve study with a site visit is required every three years.
The study shall include identification of the major components that the association is obligated to repair, replace, restore, or maintain that, as of the date of the study, have a remaining useful life of less than 30 years.
Identification of the probable remaining life of each component.
An estimate of the cost of repair, replacement, restoration, or maintenance of each component.

Developing the Major Component List

When the Reserve Specialist (RS) develops the major component list, there are several resources that aid in the development of a sound list.

The RS will read the governing documents to determine the legal organization of the association. Depending if the association is a condominium, planned development, or other type, will guide the list’s creation. The RS will also look for odd provisions, or component exclusions in the governing documents.
The RS will also look at previous reserve studies, documents and maps from the developer, and talk with management, board members and association staff.
Finally, during the physical inspection, the RS will note any obvious missing reserve components, depending on the maintenance responsibilities outlined in the documents.

It would be so easy, if the process ended here. But as our communities age, so do our buildings and our reserve component inventory may expand. I like to call this phenomenon “Component Creep.”

Component Creep

As the association ages, things can get a bit complicated. The component list must evolve and expand as the association matures, and the physical plant ages, hence the name “Component Creep.” For example, a component with a Remaining Useful Life (RUL) of 50 years, may not be included in the early reserve studies and definitely not in the initial BRE Budget Worksheets. But that same component, with a 50-year Useful Life, should be added to the component list on the association’s 20^th anniversary, (or sooner if needed). That is because this component’s RUL now falls within the 30-year study window.

As these mostly subterranean infrastructure components get added to the study as the RUL falls into the 30-year window, other experts, in addition to the RS may need to be consulted. This is because many of the components with serviceable lives of 30 years plus are latent, not easily inspected by the RS, and often exceed the expertise of the RS.

As an example, in a high rise, there are many systems that have a useful life exceeding 30 years. Examples of such components include elevator systems, domestic water distribution, emergency power, HVAC system ducting, fire and life safety, and a myriad of other components. As the association and physical plant ages, the association may need to retain other experts to augment the reserve study to ensure there are adequate reserves to fund these long-life components.

Sacramento does not have many mid/high-rise condominium projects, although the number is growing, so let’s look at what northern California has a lot of…Planned Developments. These include townhouses associations with limited unit maintenance responsibilities by the association, and single-family home communities that may only include streets, vehicle gates or less, maintained by the association.

In an association with only a few major components, there may be components that will need to be added to the study as the community ages, like the high-rise above such as, storm drains, sewers, domestic water, utility lines, irrigation piping and wiring, and other infrastructure components that are association responsibility. Boards and managers should determine ownership responsibilities before there is a problem. Often this will require legal counsel to assist the board with determining responsibility. Newer governing documents often have a maintenance matrix, so members and boards know who is responsible for the major reserve components. This is a good idea to add when CC&R’s are being revised, if not already included.

There is another good reason to determine who is responsible for these long-life components. The reserve specialist will need to know when preparing the reserve study. All too often the association looks to the RS to offer an opinion on responsibilities and while we are always opinionated, this is a legal question in most cases.

If the association has a lot of these long-life components, and it is time for them to be included in the reserve study, this can cause the reserve study fee to go up as well. I mention this because the perception is usually the cost of the study will go down with familiarity and while this is true in a lot of cases, older structure building components always take more time to evaluate, no matter how familiar the RS may be with the project.

But there may be specific circumstances where the association may save costs when engaging the reserve specialist. For example, if the association is also hiring a road engineer to develop a road plan. The results of the road plan can be used in the reserve study and the RS will not have to spend as much time investigating costs and methods for repair and replacement while working on the inspection. Or if there is a professional assisting the association with bid development and selection, this information will assist the RS and may save the RS some time on the study. This will vary by reserve study firm. To be fair, sometimes it takes more time working with other professionals, especially if they are not familiar with the demands of the reserve study process. So please check with your reserve specialist how the introduction of other construction and engineering professionals will impact the study timeline and fee.

With good communication between the board, management, and reserve specialist, a plan for detailing how these creepy components can be incorporated into the reserve study as the association matures physically. One of the main purposes of the reserve study is to minimize surprises. Dealing with the stuff we cannot see, rather than ignoring it, will allow busy board members, managers and reserve specialists alike to do more exciting things. A play maybe?

These are interesting issues. Agree? Disagree? See you at the Bar(d)!

Robert Browning, PCAM, RS, is a twice-past president of the CAI CA North Chapter, served on CAI’s Board of Trustees, President of the Foundation for Community Association Research and Chair of the California Legislative Action Committee. He also co-chaired the 2016 task force charged with reviewing and revising the CAI National Reserve Study Standards.

To see the recently revised CAI National Reserve Study Standards, please visit: https://www.caionline.org/LearningCenter/credentials/Pages/RS.aspx