Effective August 5, 2009, pursuant to House Bill 09-1359, owner's associations governed by the "Colorado Common Interest Ownership Act" must adopt policies, procedures, and rules and regulations concerning: when the association has a reserve study prepared for the portions of the community maintained, repaired, replaced, and improved by the association; whether there is funding plan in place; project sources of funding for reserves; and whether the reserve study is based on a physical and financial analysis. The legislation provides that "an internal reserve study is sufficient," which can be interpreted to mean that the association is not obligated to engage professionals to perform the reserve study. Although engaging professionals is not required, it is a prudent practice under most circumstances.
In a nutshell, a reserve study is forecast of the timing and costs of maintenance, repair, and replacement of those portions of the community for which the association is responsible. Typically, a reserve study consists of an inventory and condition assessment of the common components, and estimates of the useful life and value of each component. This information, viewed in conjunction with the level of existing reserves, if any, is used to develop a funding plan. In most cases, the funding plan will provide for regular reserve assessments to fund all or a portion of the projected costs.
Posted By Brent W. Houston, Esq.
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