Condo Media - July 2012 - (Page 46)

LEGISLATIVE UPDATE by Nena Groskind Lost in Translation Statutes Allow Community Associations to Set their Own Reserve Requirements — or Not ondominium statutes in New England vary in their scope and detail, but they have at least one feature in common: They provide little, if any, guidance about the reserves community associations should maintain. The Vermont, Rhode Island and Maine laws authorize community associations to establish reserves, but don’t require them to do so. Vermont and Rhode Island also require condominium sellers to disclose some financial information to buyers, including whether the association maintains reserves, but these disclosures don’t have to specify how much is currently in those accounts or how they are funded. Buyers are free to request more detailed information, but industry professionals will tell you few condominium purchasers scrutinize association finances as carefully as they should before they buy. C “It probably means something more than zero and something less than the amount required to replace every component that is subject to wearing out,” Stephen Marcus, a partner in Marcus, Errico, Emmer & Brooks, P.C., suggests. The statutory definition, he believes, would acknowledge the existence of other resources — special An “Adequate” Definition The Massachusetts condominium statute actually requires associations to maintain reserves, but it doesn’t specify at what level, saying only that a community’s reserves must be “adequate,” which means ... “If I could answer that question, I’d be able to retire,” Ellen Shapiro, a partner in the Massachusetts law firm Goodman, Shapiro, & Lombardi, LLC, says. “No one knows what it means.” assessments and bank loans — that could supplement a community’s reserves. “If the reserve study indicates that reserves should total $1 million, and the community has $500,000,” that will probably be viewed as “adequate,” Marcus says, at least for pur- poses of meeting Massachusetts’ statutory requirement. In theory, the lack of specificity in the condominium statutes allows associations to determine for themselves the reserve policies most appropriate for their communities. In practice, it means that some communities (probably not a majority of them) fully fund their reserves and others don’t fund them at all, leaving most somewhere in the middle, with some reserves better than none but nowhere near the amount needed to finance major capital projects when they arise without turning to the alternatives (special assessments and loans) that Marcus noted. The best practice for boards, industry professionals agree, is to commission a reserve study estimating the useful life of buildings and their component parts, update the study periodically and use it as a benchmark for gauging and meeting their reserve funding requirements. But many boards respond to that advice like most of us respond to the suggestion that we eat a healthy diet and exercise regularly: We know that regimen would be good for us, but it often takes some other motivating force — a heart attack, for example, or the threat of one — to make us follow it. Secondary Requirements For many community associations, the motivating force for establishing a reserve policy comes from the sec- 46 CONDO MEDIA • JULY 2012

Table of Contents for the Digital Edition of Condo Media - July 2012

Condo Media - July 2012
From the CED’s Desk
President’s Message
CAI News
CAI Regional News
Asked & Answered
Homeowner’s Corner
Financial Questions
CertaPro Painters How a Multinational Corporation Keeps it Local for Clients
Protecting Your Association’s Assets Oversight and Due Diligence
Community Association Data Released
Your Condo’s Future Planning for the Expected — and the Unexpected
Lost in Translation Statutes Allow Community Associations to Set their Own Reserve Requirements — or Not
CertaPro Painters How a Multinational Corporation Keeps it Local for Clients
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Classified Service Directory

Condo Media - July 2012