57-8-7.5. Reserve analysis -- Reserve fund

(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 of unit owners' annual budget that identifies the amount to be placed into a reserve fund.
     (c) "Reserve funds" means money to cover:
            (i) 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 of unit owners; or
            (ii) a shortfall in the general budget, if:
                 (A) the shortfall occurs while a state of emergency declared in accordance with Section 53-2a-206 is in effect;
                 (B) the geographic area for which the state of emergency described in Subsection (1)(c)(ii)(A) is declared extends to the entire state; and
                 (C) at the time the money is spent, more than 10% of unit owners that are not members of the management committee in the association are delinquent in the payment of assessments as a result of events giving rise to the state of emergency described in Subsection (1)(c)(ii)(A).

(2) Except as otherwise provided in the declarationfn1, a management committee 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 management committee may conduct a reserve analysis itself or may engage a reliable person or organization, as determined by the management committee, 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:
            (i) 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
            (ii) to prepare for a shortfall in the general budget that the association or management committee may use reserve funds to cover; and
     (e) a reserve funding plan that recommends how the association of unit owners may fund the annual contribution described in Subsection (4)(d).

(5) An association of unit owners shall:
     (a) annually provide unit 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 unit owner who requests a copy.

(6) In formulating the association of unit owners' budget each year, an association of unit owners shall include a reserve fund line item in:
     (a) an amount the management committee determines, based on the reserve analysis, to be prudent; or
     (b) an amount required by the declaration, if the declaration requires an amount higher than the amount determined under Subsection (6)(a).

(7)(a) Within 45 days after the day on which an association of unit owners adopts the association of unit owners' annual budget, the unit owners may veto the reserve fund line item by a 51% vote of the allocated voting interests in the association of unit owners at a special meeting called by the unit owners for the purpose of voting whether to veto a reserve fund line item.
     (b) If the unit 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 of unit owners that was not vetoed, the association of unit owners shall fund the reserve account in accordance with that prior reserve fund line item.

(8)(a) Subject to Subsection (8)(b), if an association of unit owners does not comply with the requirements of Subsection (5), (6), or (7) and fails to remedy the noncompliance within the time specified in Subsection (8)(c), a unit owner may file an action in state court for:
            (i) injunctive relief requiring the association of unit owners to comply with the requirements of Subsection (5), (6), or (7);
            (ii) $500 or 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 unit owner files a complaint under Subsection (8)(a), the unit owner shall deliver written notice described in Subsection (8)(c) to the association of unit owners.
     (c) A notice under Subsection (8)(b) shall state:
            (i) the requirement in Subsection (5), (6), or (7) with which the association of unit owners has failed to comply;
            (ii) a demand that the association of unit owners come into compliance with the requirements; and
            (iii) a date, no fewer than 90 days after the day on which the unit owner delivers the notice, by which the association of unit owners shall remedy its noncompliance.
     (d) In a case filed under Subsection (8)(a), a court may order an association of unit owners to produce the summary of the reserve analysis or the complete reserve analysis on an expedited basis and at the association of unit owners' expense.

(9)(a) A management committee may not use money in a reserve fund for any purpose other than the purpose for which the reserve fund was established,fn3 unless a majority of the members of the association of unit owners vote to approve the use of reserve fund money for that purpose.
     (b)(i) A management committee may not use money in a reserve fund for daily maintenance expenses, unless:
                 (A) a majority of the members of the association of unit owners vote to approve the use of reserve fund money for daily maintenance expenses; or
                 (B) there exists in the general budget a shortfall that the management committee may use reserve funds to cover.
            (ii) Members of the association of unit owners may prohibit the use of reserve fund money for daily maintenance expenses under the circumstances described in Subsection (9)(b)(i)(B) by a 51% vote of the allocated voting interest in the association of unit owners at a special meeting:
                 (A) for which each unit owner receives at least 48 hours notice; and
                 (B) the unit owners call for the purpose of voting whether to prohibit the use of reserve fund money for daily maintenance expenses under the circumstances described in Subsection (9)(b)(i)(B).
     (c) A management committee shall maintain a reserve fund separate from other funds of the association of unit owners.fn4
     (d) This Subsection (9) may not be construed to:
            (i) limit a management committee from prudently investing money in a reserve fund, subject to any investment constraints imposed by the declaration;
            (ii) excuse an association from the requirements described in Section 57-8-58;
            (iii) permit the use of money in a reserve fund for a legal action described in Section 57-8-58.

(10) Subsections (2) through (9) do not apply to an association of unit owners during the period of administrative control.

(11) For a condominium project whose initial declaration 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 of unit owners' governing documents; and
     (b) a copy of the association of unit owners' most recent financial statement that includes any reserve funds held by the association of unit owners or by a subsidiary of the association of unit owners. 

(12) Except as otherwise provided in this section, this section applies to each association of unit owners, regardless of when the association of unit owners was created.


Enacted 2010, ch. 46, eff. May 11, 2010.  Amended: 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 (see ch. 152, line 1317)  2015, ch.’s 34, 325, eff. May 12, 2015;  2018, ch. 395, eff. May 8, 2018; 2021, ch. 218, eff. May 5, 2021.


FN 1.  Of interest to professionals that serve both condominium and community associations (but of no real consequence to individual associations) is the difference between this section and the parallel section of the Community Association Act.  This section allows only a declaration to vary or eliminate the requirement to conduct a reserve study every six years and review/update it every three years.  The Community Association Act allows any governing document (including a board-adopted rule) to vary or eliminate that requirement.  This distinction also exists in subsections (6)(b) and (9)(c) of both sections.

FN 2.  Note that a "reserve fund analysis" is not defined in the act or otherwise mentioned anywhere else in this section or the act.  Accordingly, there is no requirement that a "reserve fund analysis" even be performed, yet subsection (4) requires it to include several listed items, seemingly without reason or consequence.

This term may be a typo of sorts and may actually mean a "reserve analysis," which is defined in subsection (1)(a) and is required.  But, considering it is not really a typo because it contains a whole additional word, and considering words matter a great deal in the law of statutory construction, which requires that we give effect to each word and phrase where reasonably possible because it is presumed the Legislature uses statutory terms advisedly,a and finally considering this section has been amended by the Legislature three separate times since the term first appeared in the 2014 enactment,b it's difficult to state casually that this is a mere typo and the word "fund" is purely extraneous.  In the end, a person 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.

a. 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.")
b. Use of the term "reserve fund analysis" first appeared in Senate Bill 90 Substitute 2 (2013) without any other reference or explanation in the bill itself. 
 

FN 3.  This subsection prohibits a board from using money in a reserve fund other than for the purpose for which the reserve fund was established, unless approved by the owners.  It is important not to confuse "the purpose of the reserve fund" with the purpose, or definition, of reserve funds.  That is, the term reserve funds is defined, and quite narrowly, but it is not used here.  Thus, "the purpose for which the reserve fund was established" can be much broader and is not necessarily the same as the narrow purpose or definition of reserve funds (the definition of reserve funds is "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.").a,b  This is because a reserve fund typically includes both  and other money.  For instance, most CC&Rs specify broad purposes of an association’s reserve fund, which often include emergencies, unforeseen expenditures, and so forth, which are beyond the very narrow definition of  in the statute.  Thus, a reserve fund may contain both  (as defined in the statute) and money for the purposes of reserves stated in the CC&Rs.

Therefore, it is possible, for instance, for a board, without approval of the owners, to use money in a reserve fund for an unforeseen expenditure (if that is a stated purpose of the reserve fund), even if it is not for work to an element that has a useful life of between three and 30 years. 

a. That a distinction between "reserve fund" and "reserve funds" was clearly intended is evidenced by Subsection (1)(a)(i) which itself makes a distinction when it states a reserve analysis is an analysis to determine “the need for a reserve fund to accumulate reserve funds.
b. 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."  (See e.g., footnote a above).  See Utah Code Section 68-3-12(1).

FN 4.  A board must establish and keep at least one reserve account that is separate from other association funds.

The statute requires a board to "maintain a reserve fund separate from other association funds."  But what does that mean exactly?

For instance, does it mean a board shall maintain reserve funds separate from other association funds?  Reserve funds is a defined term and is not the plural of reserve fund in the sense of that defined term.  (See footnote 3 regarding the distinction between reserve fund and reserve funds).  In other words, does it require that "a board shall maintain money for repair or replacement of elements that have a useful life of between three and 30 years separate from other reserve money and other association funds?" That is an unlikely interpretation, or the defined term reserve funds would have simply been used instead of reserve fund.  Why go to the trouble of defining a term and then not use it if that was the intent?  See Reedeker v. Salisbury, 952 P.2d 577 at 585 (1998) (a statute is to "be construed so that effect is given to all its provisions, so that no part will be inoperative or superfluous, void or insignificant, and so that one section will not destroy another.").

Does it require that “a board shall maintain money in reserves (a much broader concept) separate from other association funds"?  (Again, see footnote 3).

Or, does it mean that each of the association’s reserve accounts (if more than one) have to be maintained separate from each other and from the other association money?  That interpretation is unlikely because there are a number of ways to state that clearly.  For instance, it could say a board shall maintain each reserve fund separate from other association funds.  Or, "a board shall maintain money held in reserve separate from other association funds."  But, it simply says a board shall maintain a reserve fund separate from other association funds. 

Thus, the interpretation that is the closest to the plain language of the provision (and thus its most logical meaning) is that a board must establish and keep at least one reserve account that is separate from other association funds, including other association reserve money, but those other reserve accounts don’t have to be separate from each other.


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