What is a Major Component?
Components can be excluded from the reserve study only if individual homeowners, not the association, are responsible for their replacement. In any association, there may be “exclusive use common areas” that individual homeowners must maintain. The CC&Rs should also make clear the maintenance responsibility of the association and homeowners for these items. With the guidance of their CC&Rs, the board should make a separate list of exclusive use common area components and decide who should bear the responsibility for maintaining these items. If the association has responsibility for maintaining these items, they should be included in the list of major components and be given a line item in the reserve budget.Whatever the board decides, the documentation of the reserves and the assumptions that are an integral part of the reserve study should include appropriate disclosure of such specifications. Any information distributed to homeowners, or prospective homeowners, should disclose which of these items were included and which excluded.
Time-frame. Professionals do not always agree on the appropriate time-frame for a reserve study. The California Civil Code requires, as a minimum, all components with a useful remaining life of less than 30 years be included in the study. It should be noted that a component with a long useful remaining life, that may have been excluded in earlier reserve studies, could be included in a later study if its useful remaining life drops to within the time parameters of a later reserve study.
A good rule of thumb is to forecast for a time period that will include the replacement year of the component with the longest estimated useful life. Professionals generally recommend that the study include all components that will fail before the building itself. “Life-of-the building” components (such as the building foundation and structure) are generally omitted from the reserve study budget.
However, if there is reason to expect the item to wear out before the building does and if, due to the age of the units, the item may wear out within the time span of the reserve study, then that item (e.g., the electrical or plumbing system in a condominium) should be included as a reserve study component. Obviously, the ability to estimate accurately is best in the near term. Estimates of costs that are 20 to 40 years away are at best an educated guess. However, a reserve study is incomplete and may be misleading unless it covers the life of the longest-lived component. Since studies should be reviewed annually as a part of the association’s regular budget cycle, estimates can be updated as necessary.
See California Department of Real Estate Reserve Study Guidlines for its entirety
DRE Reserve Study Guidelines
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