Reserve Studies in Washington State – 2008 Legislation

By Brian P. McLean, Leahy.ps

On March 21, 2008, Washington State Governor Christine Gregoire signed into law Senate Bill 6215. The new law took effect on June 12, 2008, and requires condominium associations to update reserve studies annually and make mandatory disclosures to purchasers. This article describes what went into effect on June 12, 2008, what happens later, and some practical advice.

The new law affects reserve study professionals, declarants, associations, sellers, purchasers, and the agents that serve them. It is intended to create through disclosure greater transparency about the true cost of ownership in a condominium. It does not mandate that Associations create reserve accounts or raise association dues.

A copy of the law can be found on the State Legislature’s website: http://apps.leg.wa.gov/billinfo/summary.aspx?bill=6215

You can also find the law codified at RCW 64.34.380.

What Took Effect on Saturday, June 12, 2008?

If you’re a declarant, association, or community manager, the effect on June 12, 2008, was modest. After June 12, 2008, each Public Offering Statement or Resale Certificate should include a copy of the associations reserve study for the current fiscal year that meets all of the requirements of the new law, or the following disclaimer:

This association does not have a current reserve study. The lack of a current reserve study poses certain risks to you, the purchaser. Insufficient reserves may, under some circumstances, require you to pay on demand as a special assessment your share of common expenses for the cost of major maintenance, repair, or replacement of a common element.

If you’re a reserve study professional, you need to understand the new law. It has the most immediate impact on your work and work product. It introduces defined terms that may be new to you, or that may be defined differently from how you’ve used them in the past. (Defined terms include, for example, “Effective Age,” “Fully Funded Balance,” Remaining useful life,” “Replacement Cost.”)

What About After June 12, 2008?

If you’re a declarant, other than providing a copy of the most current reserve study or the disclaimer in a public offering statement, nothing.

If you’re an association, you or your agent ought to contact a reserve study professional in the next several months to determine the cost of preparing or updating a reserve study during your next budget preparation cycle. Once you’ve determined the cost, you should determine whether doing so creates an unreasonable hardship for your association. An unreasonable hardship exists, according to the new law, if the cost of preparing or updating a reserve study would exceed ten percent of the association’s annual budget. Other cases of unreasonable hardship will be fact-specific.

Don’t panic. If someone suggests your association needs to have a current reserve study prepared by June 12, 2008, they’re wrong. Your association doesn’t. If someone suggests your association needs to hire a reserve study professional every year, unless the scope and complexity of your association’s common facilities and components make not hiring one unreasonable, that seems excessive. If you’re being pressured to sign on the dotted line on behalf of an association, don’t. Act reasonably. Do your due diligence. You’ve got time.

If you’re a homeowner’s association (other than a condominium association), the new law doesn’t apply. It may provide you a roadmap and safe harbor of sorts for determining the long-term costs of major maintenance, repair, or replacement of common area components, but it doesn’t apply to you.

The above is intended to be a layperson’s description of the law, and to give associations a practical introduction to what to expect. It is not intended to be legal advice. If you want a legal opinion or interpretation, please have a conversation with your attorney. In fact, you should have a conversation with your attorney.