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PURPOSE
The purpose of a reserve fund is to repair, replace, restore, or maintain the major common area components. (Civ. Code §5510(b); §5565(b)(1).) The reserve study process can be simplified as follows:
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A reserve company retained by the board identifies all major common area components, the cost to repair/replace them, and their remaining life span.
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The reserve company calculates how much money is needed and when.
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The board decides how to fund the reserves--whether through increased assessment contributions, special assessments or a combination of the two.
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The funding plan is annually disclosed to the membership in the year-end budgeting process.
Study Required. All associations, regardless of size, are required to prepare a reserve study (Civ. Code §5550), unless the total replacement costs are less than 50% of the gross budget of the association, excluding the association’s reserve account for that period. (Civ. Code §5550(a).)
Every Three Years. At least once every three years, the board of directors shall cause to be conducted a reasonably competent and diligent visual inspection of the accessible areas of the major components that the association is obligated to repair, replace, restore, or maintain. (Civ. Code §5550(a).) A reserve study is not actually a "study" of the roofs, boilers, streets, etc. Instead, it is a list of the major common area components with an estimate of their remaining useful life. Reserve studies should be done by someone who specializes in reserve studies.