This article originally appeared in the July 2023 edition of Quorum.
Buildings, like people, age over time. In fact, some condominiums have reached the remarkable milestone of turning 60. As the tale is told, Keith Romney (yes, related to Mitt Romney), a Utah lawyer, is credited with creating the first modern condominium in Salt Lake City, Utah in 1960.
In Maryland, condominiums have existed since at least 1964, when the plats for Charles Village Condominium and Central Park Condominium were recorded in the Land Records of Prince George’s County. However, housing cooperatives and homeowners associations predate even that.
The reality of aging is inescapable, and it often brings with it a host of challenges. Components gradually deteriorate, losing their former functionality and becoming more susceptible to breakdowns. Sometimes, these components need to be replaced entirely. Unfortunately, we frequently postpone dealing with these issues due to present practicalities or the hope that the issues can be deferred.
Tragically, the collapse of Champlain Towers South Condominium in Surfside, Florida, served as a poignant reminder of the importance and urgency of regular inspections and comprehensive plans for the repair and replacement of shared and structural components within community associations.
In 2020 and 2021, the Maryland General Assembly implemented new reserve study requirements for condominiums, homeowners associations, and housing cooperatives in Prince George’s County and Montgomery County, respectively. Following the Champlain collapse, in 2022, the reserve study requirements were expanded statewide. Now, all Maryland community associations, regardless of county, must complete periodic reserve studies of their structural components and must include the recommended reserve funding into the community’s annual budget.
Reserve Studies in a Nutshell
In its most basic form, a reserve study has two major components: (i) a physical analysis and assessment of the condition of the community’s shared components, and life and valuation estimates of the same and (ii) a financial analysis to make sure the community association has sufficient funds to offset maintenance, repair, or replacement expenditures of these components.
Maryland law requires that a reserve study:
(1) Identify each structural, mechanical, electrical, and plumbing component of the common elements/areas and any other components that are the responsibility of the condominium, homeowners association, or housing cooperative to repair and replace;
(2) State the normal useful life and the estimated remaining useful life of each identified component;
(3) State the estimated cost of repair or replacement of each identified component; and,
(4) State the estimated annual reserve amount necessary to accomplish any identified future repair or replacement.
Frequency of Reserve Studies
- For a community association established in Prince George’s County before October 1, 2020
- A Prince George’s County community association that has had a reserve study conducted on or after October 1, 2016, must have that reserve study updated within five years from the date of that study, and at least every five years thereafter.
- A Prince George’s County community association that has not had a reserve study conducted on or after October 1, 2016, must undertake one no later than October 1, 2021, and that study must also be updated at least every five years thereafter.
- For a community association established in Montgomery County before October 1, 2021
- A Montgomery County community association that has had a reserve study conducted on or after October 1, 2017, must have that reserve study updated within five years from the date of that study, and at least every five years thereafter.
- A Montgomery County community association that has not had a reserve study conducted on or after October 1, 2017, must undertake one no later than October 1, 2022, and that study must also be updated at least every five years thereafter.
- For a community association established in any Maryland county other than Prince George’s County or Montgomery County before October 1, 2022
- A community association that has had a reserve study conducted on or after October 1, 2018, must have that reserve study updated within five years from the date of that study, and at least every five years thereafter.
- A community association that has not had a reserve study conducted on or after October 1, 2018, must undertake one no later than October 1, 2023, and that study must also be updated at least every five years thereafter.
Preparation of Reserve Studies
Given the importance of reserve studies, the Maryland General Assembly has set specific qualifications as to who can prepare reserve studies.
Reserve studies must be prepared by a person who meets the following qualifications:
- Has prepared at least 30 reserve studies within the prior three calendar years;
- Has participated in the preparation of at least 30 reserve studies within the prior three calendar years while employed by a firm that prepares reserve studies;
- Holds a current license from the State Board of Architects or the State Board for Professional Engineers; or
- Is currently designated as a reserve specialist by the Community Association Institute or as a professional reserve analyst by the Association of Professional Reserve Analysts.
Funding Reserves
The Maryland General Assembly has also contemplated funding the reserves to ensure that community associations not only conduct the reserve study but are also able to allocate funds to meet the identified needs.
Typically, a community’s annual budget provides for the following items:
- Income;
- Administration;
- Maintenance;
- Utilities;
- General expenses;
- Reserves; and
- Capital items.
Once a reserve study is complete, it must be reviewed in connection with the preparation of the annual budget, be summarized for submission with the annual proposed budget, and be available for inspection and copying by any owner in the community.
The funding amount recommended in the most recent reserve study must be included in the community’s annual budget as part of the “reserves” line item. If the most recent reserve study was an initial reserve study, then the board of directors must attain the reserve funding level recommended in the initial reserve study within 3 fiscal years following the year in which the initial reserve study was completed.
In order to fund the reserves, community associations may increase the annual assessments levied to cover the reserve funding amount required, notwithstanding any provision of the governing documents (i.e. declaration, bylaws, proprietary lease) restricting assessment increases or capping the assessment that may be levied in a fiscal year.
By adopting these measures, Maryland aims to ensure that community associations across the State prioritize the assessment and maintenance of their buildings’ structural integrity. Through proactive planning, routine inspections, and adequate reserve funding, these community associations can effectively address the challenges posed by aging buildings. This commitment to building care and safety will not only enhance the quality of life for residents but also safeguard against unforeseen emergencies, making our communities more resilient and secure.
We recommend you work with your Maryland community association attorney to ensure that your reserve studies are properly conducted and your reserves are adequately funded.
For more information, please contact Jeremy Tucker at [email protected] or Nura Rafati at [email protected].