What are Replacement Reserves?

The board of directors has the obligation to repair and replace major capital facilities, buildings, and equipment of the association. The ideal method of providing for these future expenses is the establishment of a capital reserves system and budget to assure that such funds are available when needed.

In Virginia the law requires each association to obtain an updated reserve study. This report is generally prepared by a professional engineer who evaluates the community’s assets and their condition. The reserve study provides the association with a schedule for maintenance and replacement of the assets on an annual basis up to 20 or 25 years. The study also provides the amount of money that must be set aside so the association has the funds to maintain and replace the assets when needed. This avoids the need for a special assessment being levied on top of the regular assessment charged to the owners. The money set aside for the reserves should be maintained in a separate bank account from the general operating funds. Each year the board will approve an operating budget which includes an amount to be set aside in the reserve fund. A health association will be able to fund the reserves according to the reserve study and, with the assistance of the community manager, will routinely inspect the assets to determine whether they are in good condition or need minor repairs.

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Alliance Community Management