A homeowner association board's responsibilities can be summarized as "the maintenance of association property and harmonization of the residents." To achieve these objectives, rainy day planning prevents disaster from "raining" down. Rainy day planning means anticipating events far in advance and being prepared to deal with them.

One key rainy day planning strategy is the scheduling and funding of future repairs and replacements, called "Reserve Planning". A Reserve Plan is the outcome of a "Reserve Study" which identifies all the grounds and building components for which the association has maintenance responsibility that have a 3 to 30 year life span. Each component is measured, assessed for condition and repair or replacement cost computed. This information, when combined with an inflation factor, tax considerations and return on invested reserves, produces a custom thirty year maintenance schedule and funding plan designed to keep the association assets looking good and home values their highest.

Reserve planning became popular in the 1980's when twenty year old homeowner associations started falling apart. Twenty years is the time when roofs, siding, decks, fencing, pools and roads begin to fail. HOAs that failed to anticipate these events ended up in a series of large and unpopular special assessments. Above the wailing and gnashing of teeth was overheard the cry, "There must be a better way!" Indeed.

Reserve planning identifies predictable events and charts a plan that is fairly funded by all owners along a thirty year time line. Bottom line: No more special assessments and a system that anticipates the knowable.

It's common for certain owners to resist paying money for reserves. It's human nature to put off until tomorrow and hope tomorrow never comes. Here are some of the common saws: "Assessments are already too high" and "I don't plan to live here that long". These statements are both self serving and short sighted. A reserve plan pays only for assets being used up. It's like refilling the tank of a rental car before returning it. You only pay for the gas used. Similarly, roofs, paint, roads and other association assets get used up. With reserve planning, the people that get use of them pay for the part they used up...no more, no less.

From a board's perspective, planning for future repairs and replacement is part of fiduciary responsibility. Often, there are millions of dollars of assets in the board's safekeeping. And more importantly, the board is entrusted with the biggest and dearest asset most people have...their home. Reserve planning recognizes the importance of that trust.

Prospective buyers also consider the issue of reserves. No reserve plan and little money set aside exposes the buyer to a frightening reality: Special assessments are certain but when they will fall is uncertain. Wise buyers steer clear of such ill prepared HOAs. Lenders also consider reserves when making loans since the ability for the association to maintain its assets directly impacts a lender's collateral. Attracting buyers and financing is fundamental to sustaining high market value. If buyers and lenders go away, home prices drop.

In many states, reserve planning is described in or mandated by law. It is also an accepted planning standard nationwide. It is fair to all owners and maintains the association assets systematically and responsibly. It's the right thing to do. Before disaster rains down on your community, have a Reserve Study performed and begin funding it now!

For more information on this subject, see www.Regenesis.net.

Published: July 19, 2001

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Richard Thompson owns Regenesis, a management consulting company that specializes in condominium and homeowner associations. He is a nationally recognized expert on HOA management issues. Regenesis publishes The Regenesis Report, a monthly newsletter for HOA boards, developers and managers. To subscribe, go to Regenesis.net. He can be contacted by email at .