Condominium Association Reserve Funds

Recent changes to the Utah Condominium Ownership Act provide condominium associations with some much-needed guidance regarding reserve funds – in particular, how such funds should be analyzed, how they are reported to the condominium owners, and how the association’s reserves are to be funded.

Section 57-8-7.5 of the Utah Condominium Ownership Act has long required that a reserve analysis be conducted no less than every six years, and that a previously conducted reserve analysis be reviewed and, if necessary, updated at least once every three years.

The Utah State Legislature has revised Section 57-8-7.5 to require that the reserve analysis include a list of maintenance items that will require reserve funds, the remaining useful life of such items, and the cost to repair or replace such items. The reserve analysis must also include an estimate of the annual contribution to the reserve fund necessary to meet the cost to repair or replace each maintenance item, as well as a “reserve funding plan” that recommends how the association may fund the annual contribution.

Section 57-8-7.5 also now requires that an association provide each owner with an annual summary of the reserve analysis. The association must provide a complete copy of the reserve analysis, including any updates, to any owner who requests such information.

Lastly, Section 57-8-7.5 now requires the an association include in its annual budget a “reserve fund line item” specifying how much the owners will contribute to the association’s reserve fund. The line item must be in an amount the management committee determines as prudent based on the reserve analysis, or an amount required by the association’s declaration, whichever is higher.

The owners have the right to veto the amount of the reserve fund contribution (if they feel it is too high or too low) by a 51% vote of the owners at a special meeting. If the owners veto a reserve fund line item and a reserve fund line item exists in a previously approved annual budget that was not vetoed, the owners must fund the reserve account consistent with the prior reserve fund line item.

If an association fails to comply with these requirements, an owner can sue for a court order forcing the association to comply, for $500 or the owner’s actual damages (whichever is greater), any other available remedies, and costs and attorney fees.

These revisions to the Utah Condominium Ownership Act will help condominium associations better maintain their reserve funds while requiring that associations keep their members informed as to how such funds are being managed. Perhaps even more importantly, these changes grant owners the unequivocal right to reject the management committee’s decision regarding how much the owners must contribute to the reserve fund. In short, condominium owners should be pleased to see that the Utah State Legislature has finally adopted some long overdue requirements that should help associations with the long-term maintenance of condominium project infrastructure.

This article was researched, written and posted by Clark Duellman