Reserve Study vs. Reserve Fund: What Your Board Is Actually Required to Do

Your roof has about six years left. The first replacement bid comes back at $300,000. The reserve fund holds $90,000, and your treasurer asks the question nobody at the table can answer: is the association $210,000 behind, or exactly on schedule? The money is sitting there. What is missing is the reserve study, the document that says how much should be there.

That gap is the difference between a reserve fund and a reserve study, and boards mix them up constantly. One is a bank account. The other is the plan that tells you whether the account is doing its job.

A reserve study is the plan, the reserve fund is the money

A reserve study is a planning document; the reserve fund is the cash it plans for. The study inventories the components your association is responsible for repairing or replacing, estimates the useful life each one has left, projects what the work will cost in the year it actually lands, and produces a funding plan showing what to contribute annually to be ready. The fund holds those contributions until the invoice arrives.

That is why a balance on its own tells you almost nothing. Ninety thousand dollars is comfortable for a small association with a new roof and poor for a 1970s building with original plumbing and two elevators. Underfunded is a comparison, and with no study there is nothing to compare against. We covered what a reserve fund is for and the percentage boards should aim at separately. This article is about the document that tells you whether your number is right.

What a reserve study contains

A usable reserve study has three parts: a physical analysis of the components, a financial analysis of the fund, and a funding plan. Community Associations Institute (CAI), whose Reserve Study Standards most providers work to, treats the study as a budget planning tool that identifies what the association must maintain, reports the status of the reserve fund and sets out a stable funding plan for the major expenditures ahead.

A study that earns its fee answers five questions for your board:

• Which components are reserve items, and which belong in the operating budget.
• How much useful life each component has left.
• What each replacement is projected to cost in the year it happens.
• Whether current contributions get you there.
• What the contribution would have to be if they do not.

CAI revised those standards in July 2023, after the Champlain Towers South collapse, to bring preventive maintenance and periodic structural inspections into long-term planning. The guidance is that a proactive preventive maintenance plan and ongoing structural inspections belong in the community's long-term planning. If your last study predates that revision and treats structural inspection as somebody else's file, ask what an update would add.

Which states require a study, and which require funding

Reserve rules are set state by state, and the duty to study is separate from the duty to fund. According to CAI, reserve studies or a reserve schedule are required for condominium associations in California, Colorado, Delaware, Hawaii, Nevada, Oregon, Utah, Virginia and Washington. Reserve funding is required in Connecticut, Delaware, Florida, Hawaii, Illinois, Massachusetts, Michigan, Minnesota, Nevada, Ohio and Oregon. More than 30 jurisdictions, D.C. included, require some form of reserve disclosure in the annual budget even when they require neither.

Two examples show the difference up close.

In California, Civil Code 5550 requires the board to have a reasonably competent and diligent visual inspection of the accessible areas of the major components conducted at least once every three years, when the current replacement value of those components is equal to or greater than one half of the association's gross budget. The board also has to review that study annually and adjust its reserve analysis when the numbers move.

Florida works differently, which is where boards reading national articles get burned. Florida calls for a reserve schedule rather than a general reserve study, and section 718.112(2)(g) requires a structural integrity reserve study at least every 10 years for each building three habitable stories or higher. It has to cover the roof, the structure, fireproofing and fire protection, plumbing, electrical, waterproofing and exterior painting, and windows and exterior doors, plus any other item above $25,000 whose deferred maintenance or failure would affect those components. For budgets adopted on or after December 31, 2024, unit owner controlled associations that need such a study may no longer vote to provide no reserves or reduced reserves for the items it covers.

Whichever state you are in, your statute and your association's governing documents control. Check both before you conclude your board is exempt.

Fannie Mae already changed the math, and finishes in January

Even where no statute requires a reserve study, mortgage lending now effectively does. Fannie Mae issued Lender Letter LL-2026-03 on March 18, 2026, with two dates that land on your budget, not on your lender.

The first has already passed. For loan applications dated on or after August 3, 2026, when a lender relies on your reserve study, the association's budget has to include the highest recommended reserve allocation in that study, and baseline funding, which lets the balance approach zero without dipping below it, is no longer accepted. The same date retired the Limited Review process for established projects. CAI notes that Limited Review historically accounted for roughly 40% of project reviews, so far more loans now run through Full Review, where the reserve test is actually applied.

The second date is January 4, 2027. For applications dated on or after that day, the minimum replacement reserve allocation rises from 10% to 15% of annual budgeted assessment income. An association with a study conducted or updated within the last three years that funds at the study's highest recommended level can meet the requirement that way instead.

None of this obliges your association to borrow a dollar. It decides something more immediate: whether a buyer in your building can get a conventional loan. Fund below the line without a qualifying study and the project can end up non-warrantable, which owners tend to discover when a sale falls through.

What to do before you adopt next year's budget

1. Find out when your last study was done and who wrote it. Older than three years, treat it as expired for lending purposes.
2. Ask the provider for the funding plan's highest recommended level, not the number the board adopted last year. That is the figure a lender reads now.
3. Compare that figure with 15% of your budgeted assessment income, so you know which path costs your community less.
4. Put the reserve line in the owner facing budget with its own explanation, next to the financial reports your manager should already be presenting.
5. Decide the increase in one vote instead of three small ones. Owners forgive a single explained jump more easily than a pattern of quiet creep.
6. Schedule the next update now, so the study never lapses in the middle of a selling season.

The mistakes that cost the most

The expensive errors are predictable. Boards buy a study once and treat it as permanent, then find out it aged out. They adopt the study and fund at the lowest line in it, which now fails the lending test. They trim the reserve contribution to hold assessments flat, which converts a planned expense into a special assessment two years later at a worse price.

That last one is the most common, because reserve contributions are the only part of the budget that looks painless to cut: nothing breaks this year. When the pressure is to keep dues where they are, the honest place to look is operating cost, where a cut does not defer anything, and then at how those assessments are allocated across units in the first place.

Keeping a reserve plan alive is mostly record keeping: the study, the funding plan, the budget that reflects it and the communication that explains it to owners, findable in one place instead of scattered across a manager's inbox. Noque keeps that documentation, the budget and the owner facing communication on a single platform, so your board can show its work the day a lender or an owner asks. If you want to see how that fits your community, talk to a specialist.