Maryland Condominium Repair Reserve Fund Law Enacted for Montgomery and Prince George’s Counties

The sudden collapse of the 12-story Champlain Tower South Condominium in Surfside, Florida has focused attention on the need for all condominiums to determine and fund the long-term needs for repair and replacement of structural common components such as roofs, foundations, and walls, as well as the common plumbing, electrical and mechanical systems.

A prudent condo board should periodically obtain information regarding the estimated remaining life of each common property component and the estimated cost for future repair and replacement. Known as a “reserve study”, this evaluation should be performed by an independent construction professional. Based on the future estimated repair costs, the board should accumulate “reserve funds” as part of the annual owner assessment to pay for repairs when needed.

Recent changes in Maryland law now require all condos, housing cooperatives and homeowner associations in Montgomery County and Prince George’s County to obtain a reserve study every 5 years and to include funds for recommended repairs in the annual association budget. Prince George’s County and Montgomery County, bordering Washington D.C., are the 2 most populous Maryland counties with nearly 2 million total residents.

In condominiums which want owners to be able to obtain a mortgage insured by the Federal Housing Administration, or purchased by Fannie Mae or Freddie Mac, 10 per cent of the annual budget must be dedicated for replacement reserves, or the reserve study must show there are adequate reserve funds.

The Maryland Condominium Act and Maryland Homeowners Association Act require that the annual association budget provide for “Reserves”, but do not specify that reserves are to be used for long-term repairs or that there must be any minimum level of funding for reserves.

Because some Maryland condo associations do not undertake a reserve study or do not collect adequate reserve funds, legislation has been proposed in Maryland the past few years to require all condominiums to obtain a reserve study at least every 5 years and to include the recommended annual reserve funding the annual budget. This would also apply to housing cooperatives and homeowner associations.

Although the statewide Maryland reserve legislation has not been enacted, state law now requires associations in Prince George’s County and Montgomery County to obtain periodic reserve studies of the common property major structural components and to include the recommended reserve funding in the annual budget of all condominiums, housing cooperatives and homeowner associations in these counties. The new reserve fund requirement has applied in Prince George’s County since October, 2020, and has been extended to apply in Montgomery County beginning in October, 2021 by amendments to the Condominium Act, Homeowners Association Act and Cooperative Housing Corporation Act.

For new communities, the developer-controlled board of directors must obtain a reserve study for the future major repairs and replacements of the common elements at least 30 days before the required turnover meeting to the owners. The replacement reserve funds at turnover from the developer must be at least the reserve funding amount recommended in the reserve study. Similar requirements apply to housing cooperatives and homeowner associations. A further reserve study must be completed within 5 years after the initial study and every 5 years thereafter.

For existing communities in Prince George’s County which have not done a reserve study since October 1, 2016, a reserve study must be completed by October 1, 2021. In Montgomery County, if a reserve study has not been done since October 1, 2017, a reserve study must be completed by October 1, 2022. Where a more recent study has been done since those dates, the new reserve study must be completed within 5 years of the most recent study and every 5 years thereafter.

Reserve Study Information. Each reserve study must be prepared by a person who meets certain experience or education requirements and must:

(1) identify each structural, mechanical, electrical, and plumbing component of the common elements and any other components that are the responsibility of the association to repair and replace;

(2) state the normal useful life and estimated remaining useful life of each identified component;

(3) state the estimated cost of repair or replacement of each identified component; and

(4) state the estimated annual reserve amount necessary to accomplish an identified future repair or replacement.

Reserve Repair Funds. The new law also requires that the reserve study be reviewed by the board of directors in connection with the annual budget; and be summarized for submission with the annual proposed budget sent to the owners. Most importantly, the funding amount recommended in the most recent reserve study must be included in the annual budget.

To ensure that the necessary repair and replacement reserve funds are included in owner assessments based on the annual budget, the new reserve law authorizes the board of directors to increase the assessment levied to cover the required reserve funding amount regardless of any provision in the association declaration, bylaws or articles of incorporation which restricts assessment increases or capping the assessment that may be levied in a fiscal year.

Although the Maryland reserve study and funding law applies only in Montgomery County and Prince George’s County, the standards in this statute provide guidance to condos, HOAs, and housing coops throughout Maryland and other states which do not have mandatory reserve study and funding requirements.

Posted by Thomas Schild Law Group, LLC which represents condominiums, homeowner associations, and housing cooperatives throughout Maryland (including Montgomery County, Prince George’s County, Howard County, Frederick County, and Baltimore) and Washington, D.C.

Leave a Reply

Your email address will not be published.

This site uses Akismet to reduce spam. Learn how your comment data is processed.