Washington Community Associations Are Subject to New Reserve Study Laws

On January 1, 2012, the state laws that govern Washington condominium and homeowners associations (RCW 64.34 and 64.38) were amended in significant respects with regard to reserve studies. For condominium associations, the most important change is a new legal obligation placed upon their boards to disclose the following to the owners when providing the budget summary each year:

(1) The current amount of regular assessments budgeted for contribution to the reserve account, the recommended contribution rate from the reserve study, and the funding plan upon which the recommended contribution rate is based;

(2) If additional regular or special assessments are scheduled to be imposed, the date the assessments are due, the amount of the assessments per each unit per month or year, and the purpose of the assessments;

(3) Based upon the most recent reserve study and other information, whether currently projected reserve account balances will be sufficient at the end of each year to meet the association's obligation for major maintenance, repair, or replacement of reserve components during the next thirty years;

(4) If reserve account balances are not projected to be sufficient, what additional assessments may be necessary to ensure that sufficient reserve account funds will be available each year during the next thirty years, the approximate dates assessments may be due, and the amount of the assessments per unit per month or year;

(5) The estimated amount recommended in the reserve account at the end of the current fiscal year based on the most recent reserve study, the projected reserve account cash balance at the end of the current fiscal year, and the percent funded at the date of the latest reserve study;

(6) The estimated amount recommended in the reserve account based upon the most recent reserve study at the end of each of the next five budget years, the projected reserve account cash balance in each of those years, and the projected percent funded for each of those years; and

(7) If the funding plan approved by the association is implemented, the projected reserve account cash balance in each of the next five budget years and the percent funded for each of those years.

For homeowners associations, the 2012 changes are more far-reaching. A legal obligation (subject to exemptions) to obtain a reserve study that meets certain criteria and periodically update it is placed upon those associations for the first time. The annual disclosure obligation placed upon condominium associations discussed above is placed upon homeowners association boards as well.

Washington community associations face an ever-changing and increasingly complex set of federal, state, and local laws that regulate their actions. Boards of such associations should consider establishing a relationship with an attorney to help them comply with those laws.

New Washington Laws Affect Private Transfer Fees, Resale Certificate Charges, and Reserve Study Obligations

Three significant new laws affecting Washington condominium and homeowners associations were approved during the 2011 legislative session. These laws restrict the imposition of private transfer fee obligations, permit higher resale certificate preparation charges, and require various actions relating to reserve accounts and studies. They will be discussed in the order that they take effect.

Effective April 13, 2011, a new section restricting private transfer fee obligations (“PTFOs”) was added to Title 64 of the Revised Code of Washington. A PTFO is a provision in a declaration or covenant that requires money to be paid to the association when a unit or lot is sold. The new law states that PTFOs recorded on or after April 13, 2011 are not binding or enforceable. It goes on to state that PTFOs recorded before April 13, 2011 are not presumed to be valid and that they will become unenforceable on December 31, 2011 unless the associations that benefit from them record documents containing certain notices before that date. Fortunately, transfer-related assessments payable to community associations in accordance with the state laws that govern them (such as resale certificate preparation fees and priority liens for delinquent assessments) are exempt from this new law and can still be collected in connection with transfers of ownership.

Effective July 22, 2011, the Washington Condominium Act will allow condominium associations to charge up to $275 to prepare resale certificates. The previous limit for this service was $150. To learn more about the obligation to provide resale certificates, please review my previous post on that subject.

Effective January 1, 2012, the Washington Condominium Act and Washington Homeowners’ Associations Act will contain a number of new provisions relating to reserve studies and accounts. Two of the changes affecting condominium associations deserve special mention. First, those associations are now only required to prepare and update reserve studies if this does not pose an unreasonable hardship and if the current total cost of major maintenance, repair, and replacement of reserve components is fifty percent or more of the gross budget of the association, excluding reserve account funds. Second, condominium associations are now required to make certain disclosures about reserve studies and accounts as part of the budget summaries they provide to owners.

This third law also imposes new requirements on Washington homeowners associations to prepare and update reserve studies and to make certain disclosures about reserve studies and accounts as part of the budget summaries they provide to owners. However, such associations are exempt from those requirements if: 1) the cost of the reserve study exceeds five percent of the association’s annual budget, 2) the current replacement value of the major reserve components is less than seventy-five percent of the gross budget of the association, excluding reserve account funds, or 3) there are ten or fewer homes in the association. To learn more about reserve-related obligations, please review my previous post on that subject.

Community association boards should keep in mind that the laws governing them will change from time to time. Establishing a relationship with a lawyer who focuses on representing Washington condominium and homeowners associations can help to ensure that your association fulfills its legal duties.

New Laws Regarding Solar Energy Panels, Adult Family Homes, and Reserve Studies

Three bills that directly affect Washington condominium or homeowners associations were signed into law during the last legislative session. The first two new laws limit homeowners associations’ ability to interfere if owners want to install solar energy panels on their property or use their property as an adult family home. The third new law allows small condominium associations to exempt themselves from the legal requirement to obtain a reserve study if they fulfill certain conditions.

Senate Bill 5136 states that homeowners associations’ governing documents may not prohibit the installation of solar energy panels on an owner’s property unless the panels do not comply with applicable safety and performance standards. This law does not apply to common areas. Homeowners associations’ governing documents may impose reasonable restrictions on the placement and appearance of solar energy panels. For example, governing documents can require solar energy panels to not be visible above roof lines and require portions of the equipment to be painted to coordinate with the roofing material.

House Bill 1935 states that homeowners associations’ governing documents may not limit the use and operation of “adult family homes” on the property. An adult family home is a residential home in which one or more individuals care for two to six adults who are not related by blood or marriage to the individuals providing the services. Homeowners associations are permitted to enforce reasonable nondiscriminatory regulations (such as general landscaping and sign standards) to adult family homes as long as those regulations apply to the rest of the residential property as well.

Senate Bill 5461 states that a condominium association with ten or fewer unit owners is not required to follow the reserve study requirements that went into effect last year if two-thirds of the owners agree to exempt the association from those requirements. The owners must agree to maintain that exemption by a two-thirds vote every three years. The condominium association must include the required disclosure that it does not have a reserve study in resale certificates if it opts for the exemption.