COLUMN: Barbara Holland

Q. Is the home builder obligated to fund the reserves from day one? If so, then we are greatly behind in our funding.

My feeling is that we should have a special assessment so that we can begin the upcoming year even. Our current board is raising our dues 15 percent, but that will still leave us behind in our reserves. What should we do?

A. Nevada's association law states that within 30 days after the unit owners gain the authority to elect a majority of members of the association's board (which starts out under the developer's control), the developer shall deliver to the association a complete study of the reserves. In addition, the developer must hand over to the association a reserve account that contains the developer's share of the amounts then due.

A reserve study is an estimate of the funds needed for future repairs and replacement of common area fixtures. It factors in many figures, such as the rate of inflation or the rate of interest on the reserve account, and is based upon the cost of replacement of "standards in the industry."

Often, it can be quite off. Associations can find more competitive rates than those sometimes used for studies. Associations with preventive maintenance programs may be able to prolong the life expectancy of items beyond what is projected in the reserve study. I raise these points to demonstrate that the reserve study is constantly changing and that it should serve as a guideline.

If the declaration creating the association was recorded before Oct. 1, 1999, and at the time the declarant's (developer's) control ends he or she fails to pay his or her share, the executive board shall authorize the declarant to pay the deficiencies in installments for a period of three years unless the declarant and the board agree to a shorter period.

The funding of reserves based upon a reserve study became law in 1999. Associations had a year in which to obtain their first reserve study under the new law. If your association was developed before this time and it was not funding the reserves on a regular basis, it may be underfunded. This scenario happened to many associations.

At the time of transition, the developer should transfer the required reserve funds to the homeowner-controlled association. If there were 100 units and if the reserve study indicated that $39,000 should be in the reserve account, the developer should transfer its share of the $39,000 to the association.

After reviewing the finances, operating budget, reserves and reserve study, your association may need to address the increase in reserves through special assessments. Under state law, the board has a legal obligation to fund the reserve account properly based on a reserve study.

Questions for Barbara Holland may be sent to Association Q. & A., P.O. Box 7440, Las Vegas, NV 89125. Her fax number is 385-3759.

Barbara Holland, Certified Property Manager, is president and co-owner of H&L Realty and Management Co. She is a member of the Institute of Real Estate Management and is the author of two books on the subject. Holland is a past president of the Greater Las Vegas Association of Realtors.

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