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Subject: Reserve Study
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SamA4
(California)

Posts:7


08/29/2020 2:36 PM  
A recent reserve study done by a professional company to my building and highlighted numerous building components and shows us grossly underfunded in reserves. Many of the component items I do not agree with and am curious as to the steps to remove a component. (e.g metal railings in stairwell hallways which look in good shape or fitness area not being used any more) which end up skewing the calculation and allow us less credit for the amount we are budgeting aside.

Is it common practice to remove a component from a reserve study that the analyst originally called out?

For those in older building (40+ years) how are you addressing the recent upcoming components as they reach the end of their "useful lives" on paper, despite them otherwise performing well (e.g exterior stucco painting may still look good or elevator still functions).

Appreciate your input.


SheliaH
(Indiana)

Posts:3460


08/29/2020 5:02 PM  
Why don't you agree? Are you an engineer or building contractor? Do you know when the components, such as the metal railings on the stairs were replaced? Anything can "look in good shape," but as you said, you're in a building at least 40 years old, and unless you've been there from the beginning and kept track of the maintenance, you have NO IDEA as to when the railings or anything else in that building will fall apart.

A reserve study is a guide to help the board prepare the budget in such a way that the reserves are funded properly so you don't get any weird surprises down the road when things fail - because they WILL need replacement eventually. That could be 10 years from now, according to the study, or you may get another five years beyond that. Or perhaps something will happen two months from now (like a fire) and you'll have to replace the components sooner than expected. The association board can accept some, none or all of the recommendations, but whatever they do, they need to make sure the reserves are funded properly to ensure the money's there, so you don't get caught shorthanded and the association needs a special assessment.

There are a number of discussions on this websites about special assessments and why they usually result because the board of directors and the homeowners were short-sighted because they wanted to keep assessments "low". In fact, if you look through the first five pages of this discussion section, you'll find the most recent one (no need to comment on the older ones, those discussions are over). This can be particularly important when you live in an older building - do you want to pay a special assessment on top of regular assessments? What if YOUR financial situation has changed and can't afford it, but have no choice but to pay (because you're legally obligated to do so)?

You don't say if you're on the board - whether you are or not, it's ok to read the study (all of it) and ask questions about some of the components. For communities who are doing studies, I recommend they hold a special homeowner's meeting where the reserve specialist can come and make a presentation on how the study was put together and what it means, so homeowners can ask questions. You may not agree with what you're hearing, but at least you'll have a better understanding.

For example, if the fitness area isn't being used for that purpose, fine, but you may want to ask what if anything will be done with it. Do you simply lock it up, or perhaps use it for storage? If so, you'll need to address flooring, lighting fixtures, shelving or whatever will be used to store whatever will be stored there. All of that stuff may become part of the reserve study.


AugustinD


Posts:3900


08/29/2020 5:05 PM  
Posted By SamA4 on 08/29/2020 2:36 PM
A recent reserve study done by a professional company to my building and highlighted numerous building components and shows us grossly underfunded in reserves. Many of the component items I do not agree with and am curious as to the steps to remove a component. (e.g metal railings in stairwell hallways which look in good shape or fitness area not being used any more) which end up skewing the calculation and allow us less credit for the amount we are budgeting aside.

Is it common practice to remove a component from a reserve study that the analyst originally called out?
Common practice is for the board to say to the company that did the study that the board feels that, say, the metal railings are going to last 20 years instead of five; or the amount allocated for the railings seems high, based on calling around locally.

If the fitness area is listed in your condo's covenants as a common element for which the condo has maintenance responsibility, then the board cannot reasonably or legally exclude it. The board can however massage the way the fitness area equipment is presented, in the same way that I suggested massaging (as appropriate) the metal railings life expectancy and cost.
TimB4
(Virginia)

Posts:16955


08/29/2020 7:43 PM  
The Board can determine what components should be included in the reserves.

That said, I think it would be wrong to remove handrails, etc. because these are safety items and if they fail can open the Association to legal action if someone is hurt.

GeorgeS21
(Florida)

Posts:3113


08/29/2020 8:16 PM  
“...reserve study done by a professional company ...“
“...grossly underfunded ...”
“...many ... i do not agree with”

Lots of warning signs, here, Sam.
KerryL1
(California)

Posts:7502


08/29/2020 8:33 PM  
See davis-stirling.com, a website by a CA HOA law firm. They have a very good section on reserves for you to review. Some of it are names of typical reserve components and much more info are info is included. Are you on the board?

Your Board can ask that certain components be removed from the study. We're a high rise, now almost 20years old. We had and our reserves analyst concur that the 4 interior iron stairwell railings that go from p-3 to 25th floor will never "wear out." They are very rarely used. They were removed from the study. We also removed a few other big ticket items that simply won't wear out.

The stair railings factory baked paint has never yet showed chipping or peeling. So we had it removed too with the understanding that our interior paint budget could be used for needed touch ups.

components must meet four criterion to be on a study. One is it must have an estimated useful life (RUL). If it's going to last longer than 30 years, usually it's not on the study. Similarly, though, components not on an original study might show up many years later, e.g., copper plumbing.


Our RA gives items extra years on his annual review if an item that's supposed to have no RUL still is in good shape. Our 20-year old high quality billiards table was given a 10 year life, but is in excellent shape at almost 20 years with simply new felt & pockets, so the RA tacked on 5 more years.

The. I'd have th Board get rid of the fitness area, whatever that means.

So, yes the Board can meet with the reserves analyst (certified, right?) and negotiate some of these compnents reaming useful life and whether they should be on the study at all. Remember, though, that the RA, like your CPA and HOA attorney is an expert and her/his advice should be seriously considered.
CathyA3
(Ohio)

Posts:1235


08/30/2020 10:13 AM  
Removing things from a reserve study is easy. Removing them from the association's responsibility is a whole 'nother issue. Components will continue to age will need to be repaired or replaced whether the board acknowledges this or not. The fact that the OP's association is "grossly underfunded" suggests that this has been the traditional MO all along - and that way special assessments lie.

Removing actual components, such as removing a fitness center, will likely require a vote of the entire membership. They paid for these things when they bought their units, and the component may be described in the governing docs. The docs may also have language about what the board can and cannot do with the property, so this may be a non-starter.
SamA4
(California)

Posts:7


08/30/2020 6:41 PM  
All thank you for your insightful responses. Gives me an idea of what options I have.

@ SheliaH ,: For context, yes I am on the board and I do have experience w/ engineering and contractors. That being said I am not refuting everything our Reserve Study says, but am questions certain items. I am aware software is used to generate most of the UL and RUL, and often little attention may be given to routine preventative maintenance records. I can look back and see where prior board membership was cheap and got us in the situation we are today. Then again they were hit with some unfortunate structural repair projects which is being paid of until this day.

What I am really looking for here, is the ability to remove components as required based on risk analysis to help contribute more to reserve items that are more critical like elevator, exterior painting , fire/safety , etc, rooof, ligthing etc. It seems here some of you have confirmed this can happen (albeit with legal implications) with a collaborative between Owner, RA, and board members (which is what we kinda did more recently).

@Kerry--I like that your RA was flexible enough to work with you guys and do an inspection and push the iron stairwell railings out.

@Cathy-thnx for clarifying additional steps required when considering removing a component. For those as common use, agree the governing docs would need updating (which I'm not sure how much of a process that is).

That being said, when say a reserve study is merely indicating replacing an entire elevator (aka elevator system modernization) based on 'recommended' UL of 40 years, when otherwise the elevator is being handled by a professional property management company and being serviced by their elevator sub and running in fair condition. In fact I came across this in the Operating Cost Manual for HomeOwners by CA DRE (pg 23) ..this may warrant it's own discussion , but I'll post here and curious what folks thoughts are.....



306. Elevators
An elevator replacement reserve is not required since
the elevator usually lasts as long as the structure itself.
There is need, however, for a major component reserve
as well as a budget item for a monthly service contract.
The cost of periodic servicing of the overhead traction
elevator is higher than that for the hydraulic lift type. The
mechanism to operate the hydraulic lift elevator is much
more extensive and complicated.
Hydraulic $1,050/year (see note)
Traction Full service only—no reserve
Note: Less than a full-service contract on a hydraulic-type
elevator will require a reserve as shown above. Less than
full service is normally referred to as “oil and grease contract
service.”
CathyA3
(Ohio)

Posts:1235


08/31/2020 5:23 AM  
Posted By SamA4 on 08/30/2020 6:41 PM
... snippage ...

@Cathy-thnx for clarifying additional steps required when considering removing a component. For those as common use, agree the governing docs would need updating (which I'm not sure how much of a process that is).

... more snippage ...




Amending your CC&Rs is a legal process that involves having a lawyer draft the proposed amendment, conducting a community vote, and recording the final approved amendment. Everything has to be done exactly by the books, and approval typically requires a super-majority of homeowners to vote Yes (67% or 75%) - although your governing docs and/or state law may require a different percentage.

My community voted on three fairly straightforward, non-controversial amendments. The entire process - starting with drafting the amendment and publicizing the issues and upcoming vote, up through recording the results - took about a year.
GeorgeS21
(Florida)

Posts:3113


08/31/2020 5:46 AM  
Sam,

I am still a bit stuck on the "grossly underfunded" part of your initial post.

My focus, in your circumstances, would be to get bucks into the reserves - which would provide flexibility to address a broad range of items.

I would kick the other bits to a reserve study review group of some sort - then, discuss with the reserve study company to determine whether you are outside industry norms.

JohnC46
(South Carolina)

Posts:9877


08/31/2020 9:30 AM  
Posted By GeorgeS21 on 08/31/2020 5:46 AM
Sam,

I am still a bit stuck on the "grossly underfunded" part of your initial post.

My focus, in your circumstances, would be to get bucks into the reserves - which would provide flexibility to address a broad range of items.

I would kick the other bits to a reserve study review group of some sort - then, discuss with the reserve study company to determine whether you are outside industry norms.




I agree.
SamA4
(California)

Posts:7


08/31/2020 10:26 AM  
We are getting bucks into the reserves. I think the % funded seems skewed when we have components that otherwise should be decommissioned or removed .
SheliaH
(Indiana)

Posts:3460


09/02/2020 2:01 PM  
You haven't said if you discussed any of this with the reserve specialist (or your board colleagues for that matter), which should be your first stop. I saw a little of your second conversation regarding the elevators and if you'd like more money to be put towards that and remove other components, you need to do your homework and make your case before your board colleagues. As I said earlier, the board decides to accept some, none, or all of the specialist recommendations, and since the specialist has already been paid and probably doesn't live in your building, what does he/she care what you do after that?

The last time our community did a reserve study (I was still on the board), we did ask our specialist to rerun the numbers without the swimming pool, as we had a homeowner vote going on to get rid of the thing altogether. He ran those numbers, along with another set as to what we'd have to save if we did a complete repair of the pool. That helped us strengthen our case to encourage the homeowners to close the pool once and for all (which they eventually decided to do.

You also said earlier your previous boards were fairly cheap which is why you're in this current situation regarding underfunding, so taking out this or that may not necessarily solve your problem. I understand avoiding large spikes in assessment increases, but if the previous boards were that short-sighted, along with the homeowners who may have gone along with this, you may have to take a deep breath and do what's necessary to ensure the association has the money to take care of major repairs and replacements in the future. Massaging the numbers so they'll look good to everyone else, only prolongs the agony and people may not be happy that you took out repairs for X component because of....why do you want to do this again? You'll need to explain the rationale for all this as your argument gets underway.

While you're at it, take a look at your operating budget - maybe there are line items that have gone up, up, up in recent years and it's time to take a close look as to why. You might be able to do some trimming in those areas and that could free up a few pennies to put towards reserves.
MarshallT
(New York)

Posts:101


09/03/2020 6:37 AM  
Hi,

As others have noted, the board can remove items from the reserve study, but it is not recommended. The purpose of having a study done is to identify those things that might look good or appear to be working well, but will really need upgrading soon.

If you want to remove an element from the building, that will require the support from owners.
AugustinD


Posts:3900


09/03/2020 7:07 AM  
Posted By MarshallT on 09/03/2020 6:37 AM
As others have noted, the board can remove items from the reserve study, but it is not recommended.
I posted above that removing capital assets from a reserve study (said capital assets by definition having a useful life of more than a year) would be unlawful. The reason I posted this is that, if a board does not have a plan in place to maintain a capital asset, then the board is violating its duties under the governing documents. Per the other thread SamA4 started, focusing on his condo's elevators, I can see his condo arranging for a hydraulic elevator "Full Service Contract" as described in the document he quoted. Then, per the document SamA4 linked, the board could reasonably remove the elevators from the Reserve Study. But without something like the document SamA4 linked to support such a move, I would deem removal of something like the elevators from the Reserve Study to be unlawful.

Down the road and without proper maintenance the elevators are highly likely to break on a regular basis, greatly inconveniencing members, to say the least. The effect on sales of condo units could be dramatic as well. When the board says it does not have the money to fix the elevators, then either a special assessment will have to be imposed or an expensive (interest and fees-wise) HOA loan will have to be taken. I can see some owners being mighty disgruntled about the board shirking its legal obligation to maintain the elevators (via a Reserve Study or Full Service Contract in the case of hydraulic elevators) and hiring attorneys.
KerryL1
(California)

Posts:7502


09/04/2020 6:57 PM  
The davis-stirling.com website makes specific remarks about removing items from a reserves study.

Our R.A. created new pages for each former component to show that it had been on the study; that the Board voted to remove i; and how the HOA intends to handle the component in the future. Given his credentials, I imagine that in part this was done to show he hadn't neglected any items. And it also shows the HOA is redouble for it. In some cases, a new line item in the operating budget was created.

In other cases, there might have been a line item to "replace," but that was changed to "repaint." Those stay in the study.

KerryL1
(California)

Posts:7502


09/04/2020 6:57 PM  
The davis-stirling.com website makes specific remarks about removing items from a reserves study.

Our R.A. created new pages for each former component to show that it had been on the study; that the Board voted to remove i; and how the HOA intends to handle the component in the future. Given his credentials, I imagine that in part this was done to show he hadn't neglected any items. And it also shows the HOA is redouble for it. In some cases, a new line item in the operating budget was created.

In other cases, there might have been a line item to "replace," but that was changed to "repaint." Those stay in the study.

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