The Reserves Summary required under the new Davis-Stirling Act, effective January, 1 2014, is a disclosure to inform members about the association funds available for the replacement and or repair of major components that the association is required to maintain. The summary of the association’s reserves must be based upon the most recently conducted Reserve Study (learn more here), and may only takes into account assets held in cash or cash equivalents. The summary should be printed in boldface type and include all of the following:
Required Components
Estimated Costs and Remaining Life
The association must include the current estimated replacement cost, estimated remaining life, and estimated useful life of each major component.
Funds Needed and Available
The association must include:
- The current estimate of the amount of cash reserves necessary to repair, replace, restore, or maintain the major components.
- The current amount of accumulated cash reserves actually set aside to repair, replace, restore, or maintain major components.
- If applicable, the amount of funds received from a compensatory damage award; or from a settlement to an association from any person or entity for injuries to property, real or personal, arising out of any construction or design defects, and the expenditure or disposition of funds, including the amounts expended for the direct and indirect costs of repair of construction or design defects. These amounts should be reported as separate line items under cash reserves. However, an association that is obligated to issue a review of their financial statement may include this information in the review a statement.
Calculation of Funds Available
The percentage (%) that the current accumulated cash reserves set aside for the repair or replacement of major components – determined in #2, above – equals the current estimate of cash reserves necessary to repair or replace these components – determined in #1, above.
Current Deficiency in Reserve Funding
An association must inform the membership when it does not have enough cash to meet the reserve funding goals established in the reserve study. This deficiency must be calculated and reported in the following manner:
All amounts should be expressed on a per unit basis. Figures should be calculated by subtracting the amount determined in #2 from the amount determined in #1, above, and then dividing the result by the number of separate interests within the association. However, if assessments vary by the size or type of ownership interest, the association should calculate the current deficiency in a manner that reflects the variation.