Reserve Studies - The Complete Guide is 436 pages explaining the concepts and process for making a reserve study. For more information and to order, click here.

 

 

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State of Alabama

The state of Alabama has adopted specific statutes related to reserve studies, which are set forth in sections 35-8A-302 of the state’s civil  statutes.

Those statutes generally provide that “the association may assess and collect funds and may pay for common expenses and limited common expenses out of such funds as are appropriate.”  .

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.

 

Section 35-8A-302

Powers of unit owners’ association.

(a) Except as provided in subsection (b), and subject to the provisions of the declaration, the association may:

(1) Adopt and amend bylaws and rules and regulations, except that an association may not adopt a bylaw or enforce an existing bylaw to restrict an owner from renovating or decorating the interior walls, ceiling, or floor of his or her unit in a manner that does not substantially alter the exterior appearance of the condominium;

(2) Adopt and amend budgets for revenues, expenditures, and reserves and impose and collect assessments for common expenses from unit owners;

(3) Hire and discharge managing agents and other employees, agents, and independent contractors;

(4) Institute, defend, or intervene in litigation or administrative proceedings in its own name on behalf of itself or two or more unit owners on matters affecting the condominium;

(5) Make contracts and incur liabilities;

(6) Regulate the use, maintenance, repair, replacement, and modification of common elements;

(7) Cause additional improvements to be made as a part of the common elements;

(8) Acquire, hold, encumber, and convey in its own name any right, title, or interest to real or personal property, but common elements may be conveyed or subjected to a security interest only pursuant to Section 35-8A-312;

(9) Grant easements, encroachments, leases, licenses, and concessions through or over the common elements;

(10) Impose and receive any payments, fees, or charges for the use, rental, or operation of the common elements, other than limited common elements described in Section 35-8A-202(2) and (4), and for services provided to unit owners;

(11) Impose against owners of units charges for late payment of assessments and, after notice and an opportunity to be heard, levy reasonable fines for violations of the declaration, bylaws, and rules and regulations of the association;

(12) Impose reasonable charges for the preparation and recordation of amendments to the declaration, resale certificates required by Section 35-8A-409, or statements of unpaid assessments;

(13) Provide for the indemnification of its officers and board and maintain directors’ and officers’ liability insurance;

(14) Assign its right to future income, including the right to receive common expense assessments, but only to the extent the declaration expressly so provides;

(15) Exercise any other powers conferred by the declaration or bylaws;

(16) Exercise all other powers that may be exercised in this state by legal entities of the same type as the association; and

(17) Exercise any other powers necessary and proper for the governance and operation of the association.

(b) The declaration may not impose limitations on the power of the association to deal with the declarant which are more restrictive than the limitations imposed on the power of the association to deal with other persons.

(Acts 1990, No. 90-551, p. 858, §3-102; Act 98-149, p. 252, §1.)

Source: http://www.legislature.state.al.us/codeofAlabama/1975/35-8A-302.htm

 

Additional State Reserve Study Laws