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October 10, 2008 7:00 AM

Understanding new condo reserve study requirements

Posted by Elizabeth Rhodes

Q: Our condominium association is struggling to understand the new law requiring us to have a professional reserve study. With the exception of financial hardship, is it mandatory we have this study? Are there other exceptions, perhaps related to the number of units or age of the building?

Can we forgo a study if we have our accountant certify our reserves are sufficient to meet expenses? And if we don't have a reserve study done, does this open our association to liability if an owner decides to claim it impairs the marketability of his unit?

A: In effect since June, this law requires Washington's condominium associations to prepare and periodically update a financial-wellness check called a reserve study.

The study must be done by a professional, who estimates the remaining useful life of the physical structure and components and calculates how much money will be needed for their maintenance and replacement. An accountant wouldn't be qualified to do this inspection and analysis.

Kirkland attorney Brian McLean played a role in drafting this law. He says it doesn't contain specific language allowing condos of a certain size or age to opt out of doing a reserve study. Rather, the law states than that "an association can excuse itself from obtaining a current reserve study if doing so poses an 'unreasonable hardship,' which is more than just a financial hardship," McLean explains.

Just what constitutes "unreasonable" is up to the condo board to decide, he adds.

An association that decides against a study must tell prospective buyers there is none and the lack of one may pose a financial risk to them.

McLean says the way the law is written doesn't really lend itself to a liability claim from an owner upset by the lack of a study. Instead, the law says an association without one must undertake one if at least 20 percent of the association's homeowners officially request it. That solves the problem of no study.

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