Historical Version of Section.
Effective May 12, 2015.
Superseded May 8, 2018.
(1) As used in this section:
(a) "Reserve analysis" means an analysis to determine:
(i) the need for a reserve fund to accumulate reserve funds; and
(ii) the appropriate amount of any reserve fund.
(b) "Reserve fund line item" means the line item in an association's annual budget that identifies the amount to be placed into a reserve fund.
(c) "Reserve funds" means money to cover the cost of repairing, replacing, or restoring common areas and facilities that have a useful life of three years or more and a remaining useful life of less than 30 years, if the cost cannot reasonably be funded from the general budget or other funds of the association.
(2) Except as otherwise provided in the governing documentsfn1, a board shall:
(a) cause a reserve analysis to be conducted no less frequently than every six years; and
(b) review and, if necessary, update a previously conducted reserve analysis no less frequently than every three years.
(3) The board may conduct a reserve analysis itself or may engage a reliable person or organization, as determined by the board, to conduct the reserve analysis.
(4) A reserve fund analysisfn2 shall include:
(a) a list of the components identified in the reserve analysis that will reasonably require reserve funds;
(b) a statement of the probable remaining useful life, as of the date of the reserve analysis, of each component identified in the reserve analysis;
(c) an estimate of the cost to repair, replace, or restore each component identified in the reserve analysis;
(d) an estimate of the total annual contribution to a reserve fund necessary to meet the cost to repair, replace, or restore each component identified in the reserve analysis during the component's useful life and at the end of the component's useful life; and
(e) a reserve funding plan that recommends how the association may fund the annual contribution described in Subsection (4)(d).
(5) An association shall:
(a) annually provide lot owners a summary of the most recent reserve analysis or update; and
(b) provide a copy of the complete reserve analysis or update to a lot owner who requests a copy.
(6) In formulating its budget each year, an association shall include a reserve fund line item in:
(a) an amount the board determines, based on the reserve analysis, to be prudent; or
(b) an amount required by the governing documents, if the governing documents require an amount higher than the amount determined under Subsection (6)(a).
(7)(a) Within 45 days after the day on which an association adopts its annual budget, the lot owners may veto the reserve fund line item by a 51% vote of the allocated voting interests in the association at a special meeting called by the lot owners for the purpose of voting whether to veto a reserve fund line item.
(b) If the lot owners veto a reserve fund line item under Subsection (7)(a) and a reserve fund line item exists in a previously approved annual budget of the association that was not vetoed, the association shall fund the reserve account in accordance with that prior reserve fund line item.
(8)(a) Subject to Subsection (8)(b), if an association does not comply with the requirements described in Subsection (5), (6), or (7) and fails to remedy the noncompliance within the time specified in Subsection (8)(c), a lot owner may file an action in state court for:
(i) injunctive relief requiring the association to comply with the requirements of Subsection (5), (6), or (7);
(ii) $500 or the lot owner's actual damages, whichever is greater;
(iii) any other remedy provided by law; and
(iv) reasonable costs and attorney fees.
(b) No fewer than 90 days before the day on which a lot owner files a complaint under Subsection (8)(a), the lot owner shall deliver written notice described in Subsection (8)(c) to the association.
(c) A notice under Subsection (8)(b) shall state:
(i) the requirement in Subsection (5), (6), or (7) with which the association has failed to comply;
(ii) a demand that the association come into compliance with the requirements; and
(iii) a date, no fewer than 90 days after the day on which the lot owner delivers the notice, by which the association shall remedy its noncompliance.
(d) In a case filed under Subsection (8)(a), a court may order an association to produce the summary of the reserve analysis or the complete reserve analysis on an expedited basis and at the association's expense.
(9)(a) A board may not use money in a reserve fund:
(i) for daily maintenance expenses, unless a majority of association members vote to approve the use of reserve fund money for that purpose; or
(ii) for any purpose other than the purpose for which the reserve fund was establishedfn3.
(b) A board shall maintain a reserve fund separate from other association fundsfn4.
(c) This Subsection (9) may not be construed to limit a board from prudently investing money in a reserve fund, subject to any investment constraints imposed by the governing documents.
(10) Subsections (2) through (9) do not apply to an association during the period of administrative control.
(11) For a project whose initial declaration of covenants, conditions, and restrictions is recorded on or after May 12, 2015, during the period of administrative control, for any property that the declarant sells to a third party, the declarant shall give the third party:
(a) a copy of the association's governing documents; and
(b) a copy of the association's most recent financial statement that includes any reserve funds held by the association or by a subsidiary of the association.
(12) Except as otherwise provided in this section, this section applies to each association, regardless of when the association was created.
Enacted 2010, ch. 46, eff. May 11, 2010.
2011, ch. 134, eff. May 10, 2011;
2012, ch. 83, ch. 369, eff. May 8, 2012;
2013, ch. 419, eff. May 14, 2013;
2013 ch. 152 (coordination clause), ch. 152, eff. July 1, 2014;
2015, ch. 34, eff. May 12, 2015.
FN1 Of interest to community managers that manage both condominium and community associations is the difference between this and the parallel section of the Condo Act, which states only a declaration, as opposed to any governing document (including board-adopted rules), can vary the requirements of subsection (2) of that Section 57-8-7.5 in a condominium project. (Section 57-8-7.5 states, "Except as otherwise provided in the declaration, a management committee shall: (a) cause a reserve analysis to be conducted no less frequently than every six years . . ." This distinction also exists in subsections (6)(b) and (9)(c). This distinction is of interest to community managers that manage both condominium and community associations, but has no impact on individual associations.
FN2 Note that a "reserve fund analysis" is not defined in the act or otherwise mentioned anywhere else in this section or the act. Accordingly, it would seem there is no requirement that a "reserve fund analysis" be performed. However, this term may be referring to a "reserve analysis," which is defined in subsection (1)(a). (But see Whitaker v. Utah State Retirement Bd., 2008 UT App 282, 191 P. 3d 814 (stating "[b]ecause we presume that the Legislature uses statutory terms advisedly, we give effect to each word, phrase, clause, and sentence where reasonably possible.")). In the end, the reader is left to guess as to the distinction between a "reserve fund analysis" and a "reserve analysis," and what the effect that distinction (or lack of distinction) has on an association trying to fulfill the requirements of this statute.
FN3 Unfortunately, this statute does not clarify the distinction it makes between a “reserve fund” and “reserve funds.” That is, the statute specifically defines “reserve funds” in subsection (1)(c), but it doesn’t use the term “reserve funds” in subsection (9)(a), it uses the terms “reserve fund money” and “reserve fund.” (That a distinction was clearly intended is evidenced by Subsection (1)(a)(i) which states a reserve analysis is an analysis to determine “the need for a reserve fund to accumulate reserve funds”). (While Utah law requires that, in construing the Utah Code, the singular includes the plural, and the plural includes the singular, unless it would be inconsistent with the manifest intent of the Legislature, or repugnant to the context of the statute, the term "reserve funds" is not used in the context of the plural of "reserve fund." (Utah Code Section 68-3-12(1)).
Thus, when the statute says in subsection (9)(a) that the members must vote to approve use of reserve fund money “for any purpose other than the purpose for which the reserve fund was established,” the definition of reserve funds is not the definition of reserve fund or reserve fund money. Reserve fund and reserve fund money are broader terms.
Subsection (1)(c) states ""reserve funds" means money to cover the cost of repairing, replacing, or restoring common areas and facilities that have a useful life of three years or more and a remaining useful life of less than 30 years, if the cost cannot reasonably be funded from the general budget or other funds of the association."
So, reserve funds accumulate in a reserve fund. (See subsection (1)(a)(i)). But, not all money in a reserve fund is “reserve funds,” as reserve funds are defined in the statute. For instance, most CC&Rs specify purposes of an association’s reserve fund, which often include emergencies, unforeseen expenditures, and so forth, which are beyond the very narrow definition of “reserve funds” in the statute. Thus, a “reserve fund” may contain both “reserve funds” (as defined in the statute) and money for the purposes of reserves stated in the CC&Rs.
Or, an association could establish a reserve fund, separate from other reserve money and other funds, to hold the “reserve funds” from the statute. In that case, it would be reasonably clear that the purpose of such second reserve fund is to cover the cost of repairing, replacing, or restoring common areas and facilities that have a useful life of three years or more and a remaining useful life of less than 30 years, if the cost cannot reasonably be funded from the general budget or other funds of the association.
FN4 The meaning of this provision is, unfortunately, unclear. Does it intend to say "a board shall maintain reserve funds separate from other association funds?" (See footnote 3 regarding distinction between reserve fund and reserve funds). It is unlikely, or it would have simply used those words. Or, does it mean “a board shall maintain money in a reserve fund separate from other association funds"? (Again, see footnote 3). Or, does it mean that each of the association’s reserve funds have to be maintained separate from each other and from the other funds? It does not say a board shall maintain each reserve fund separate from other association funds. Rather, the intepretation that is the closest to the provision's plain meaning is that a board must establish and keep a reserve fund that is separate from other association funds, including other association reserve funds, but those other reserve funds don’t have to be separate from each other. Thus, that is it's most logical meaning.