Utah Reserve Study Law
In Spring 2010 the Utah legislature passed a law mandating the completion of a reserve study at least every six years for all Utah condominium and homeowners associations. The full text of SB 278 is shown in the attached conformed bill.
The bill required that, if no reserve study has been conducted since March 2008, that a reserve study must be completed no later than July 1, 2012. By our observation, many associations have yet to comply with this bill.
The bill was inserted into law as:
Common industry practice is that homeowners associations should perform periodic reserve studies as a prudent business practice. Directors of associations are generally held to a “prudent businessman” rule in determining whether or not they have met the fiduciary duty of their position for the association. A prudent businessman would establish a capital replacement budget (reserve study) to make sure he is generating enough revenues (reserve assessments) to provide for major repairs and replacements.
There is little discussion about whether an association should perform a reserve study. The only significant areas of discussion revolve around how frequently a reserve study should be performed, and if there should be any minimum funding requirements. Most states that have reserve study statutes require physical site inspections on 3 or 5 year cycles. We believe that 5 years is too long. 3 years may be too long if significant reserve expenditures are being made during the subject time period. However, the association should perform an update without site inspection every year as part of the annual budget process.
Contact Facilities Advisors at (435) 393-6259 or (970) 946-2352 for your Utah reserve study needs. We have prepared numerous reserve studies in Utah.