Articles

Client Alert: Reserve Studies and Budgets in Prince George's County

Date: August 7, 2020
With COVID-19 and its economic impact dominating both news cycles and Community Association agendas, it is important not to lose sight of other developments in the field.  One important development is the passage of Maryland House Bill 254, which will take effect October 1, 2020 and will affect the budgets of Condominiums, Homeowners’ Associations and Co-operatives Housing corporations in Prince George’s County.  HB-254 modifies the Real Property Article and the Corporations and Associations Article of the Maryland Code.  The full legislative summary, as well as a link to the full text, can be found here.

The key provisions of HB-254 are:

Mandated Reserve Study
  • If the most recent reserve study for an association was conducted prior to October 1, 2016, then a new study must be completed by October 1, 2021.  
  • Otherwise, all community associations must have a reserve study conducted within five (5) years of the previous study, and at least once every five years thereafter.
  • Certain HOAs, those that either have no responsibility for maintaining common areas, or issue bonds for the purpose of meeting capital expenditures, are exempt from this requirement.
  • The required reserve studies must be made available for owners to review.

New Budget Requirements
  • Funding reserves provided in each annual budget must be the amount recommended by the most recent reserve study.
  • The Board of any association has the authority to increase assessments in order to sufficiently fund reserves, regardless of any limitation on assessment increases stated in the governing documents.
  • Any budget enacted after October 1, 2020, will be subject to these requirements and privy to this authority. 

Developer Obligation
  • When a Declarant or Developer turns over operation of an Association to the unit owners, it will now be required to turn over funds at least equal to that recommended by the most recent reserve study.
  • Failure to do so may subject them to discipline from the Attorney General’s Division of Consumer Protection.

Although this law currently applies only to communities in Prince George’s County, those in other jurisdictions should be aware of these developments and consider taking steps to comply, as there is an expectation that the requirements will soon be expanded statewide. Associations should note that the law passed unanimously through the Maryland General Assembly, and that a similar law is already in place statewide in Virginia.

Association Directors and Managers, particularly those in Prince George’s County, should consult with their Whiteford attorney about what these changes will mean, and how best to bring their association into compliance.
The information contained here is not intended to provide legal advice or opinion and should not be acted upon without consulting an attorney. Counsel should not be selected based on advertising materials, and we recommend that you conduct further investigation when seeking legal representation.