New Condominium Reserve Study Requirements Under Act 62
Last year, the legislature enacted Act 62, which became effective on January 1, 2023. Act 62 amended, among other sections of the condominium statute, HRS § 514B-83, to now require that the breakdown of annual maintenance fees required to be provided in a developer's public report also include the annual reserve contributions based on a reserve study. This reserve study requirement applies to any new public report or amended public report that is submitted to the Real Estate Commission of the State of Hawaii after January 1, 2023.
Act 62 also amended HRS § 514B-148, which applies to budgets that are adopted and distributed or made available to unit owners at least annually by the condominium's board of directors. Under the amended HRS § 514B-148, the estimated replacement reserves included in the condominium association's annual budget must be based on a reserve study performed by the association and must be reviewed by an independent reserve study preparer. The study must be reviewed or updated at least every three years.
A reserve study requires three basic determinations: (1) the parts of the condominium that are the association's responsibility to maintain; (2) the expected life of such parts of the condominium; and (3) the cost to maintain, repair, or replace such parts of the condominium.
Conducting a reserve study may require expert advice from a third-party reserve study preparer with experience in the area. The amended HRS § 514B-83, however, does not require the reserve study for a public report to be conducted or reviewed by an independent third-party reserve study preparer. Accordingly, the reserve study may be prepared by the developer or the project's management company. The reserve study conducted pursuant to HRS § 514B-148, on the other hand, must be reviewed by an independent reserve study preparer and reviewed and updated at least every three years.
It is incumbent on developers to do a reserve study. Developers might also consider disclosing the need for the association to have the study and attendant reserve contributions reviewed and updated every three years.