On January 8, 2024, New Jersey approved a bill creating maintenance, inspections, and reserve financing for cooperatives and condominiums. Its enactment was a step towards keeping the safety and financial stability of properties across the state. One of its main provisions is the mandate for reserve studies.
New Jersey Senate Bill No. 2760, or Assembly 3484 (S2760/A4384), requires all state cooperatives and Homeowners Associations (HOA) to conduct a reserve study if the combined value of their common area assets exceeds $25,000. This encourages associations to proactively assess and plan for the upkeep of major structural and mechanical systems.
According to the law, an NJ reserve study must be updated at least every five years. However, best practices recommended by the Community Associations Institute (CAI) and financial institutions like Fannie Mae and Freddie Mac suggest conducting updates every three years for better accuracy. Associations with reserve studies older than January 8, 2019, or those without any existing study must complete or update their study by January 8, 2025.
The timeline differs slightly for newly formed associations. S2760/A4384 mandates that these associations conduct their first reserve study within two years of electing their initial board. It aims to provide new communities with a clear understanding of their long-term maintenance responsibilities and funding requirements.
New Jersey’s reserve study legislation also sets standards for reserve fund management. Associations are required to follow a 30-year funding plan to account for sufficient cash flow for all anticipated reserve projects without relying on loans or special assessments.
While the law does not mandate “fully funded” reserves where reserve cash equals the total value of asset deterioration, it requires a baseline funding approach. This means associations must have enough cash to cover anticipated expenses over the next 30 years, reducing the risk of financial shortfalls.
Flexibility is built into the bill to account for unexpected situations. If an asset fails earlier than anticipated and the reserve fund is insufficient, associations may still use special assessments or loans to cover the costs. Similarly, overspending on a project is allowed as long as it does not jeopardize cash availability for other reserve projects in the next five years and the coverage is addressed within that time frame.
Most importantly, a reserve study New Jersey must be performed by qualified individuals, such as reserve specialists or professional engineers licensed in the state. They must also adhere to National Reserve Study Standards.
To better understand the qualifications of reserve study preparers, check out Lockatong Engineering’s infographic about reserve study preparers.
