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Components

The physical assets tracked in your reserve study.

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Frequently asked questions

What is the difference between reserve expenses and operating expenses?

Operating expenses are the recurring, everyday costs of running an association: landscaping, utilities, insurance, management fees, routine maintenance and small repairs. Reserve expenses are the periodic, large repairs and replacements of major common elements, such as roofs, paving, elevators and pool resurfacing. The operating budget is spent within the year. The reserve fund is built over many years. Each major replacement is then paid for by the owners who used up the component, not by a special assessment.

What qualifies as a reserve component?

The Community Associations Institute (CAI) National Reserve Study Standards use a four-part test. A component belongs in the reserve study when all four are true:

  1. The association is responsible for maintaining the component.
  2. The component has a limited Useful Life.
  3. The Remaining Useful Life can be reasonably predicted.
  4. The replacement cost is above a minimum threshold the association sets.

If any test fails, the cost is normally paid from the operating budget or left out of the study.

Is there a national standard list of reserve and operating items?

No national list exists. The national standard is a test: the CAI four-part test. Reserve professionals apply the test to each association's own components. The final classification also depends on the association's governing documents and on state law. The governing documents define who maintains what. Boards should adopt the classification as a written policy and review the policy every year.

What are common examples of reserve components?

Typical reserve components include roofs, asphalt paving and seal coating, exterior paint, siding and waterproofing, elevators, boilers, chillers and other central mechanical equipment, pool and spa resurfacing and equipment, decks and balconies, fencing and gates, clubhouse interiors, common area flooring and furniture, security and access control systems, and large pumps. Each is a major, predictable expense the association is responsible for. Reserve contributions fund these items, not the annual operating budget.

Which items are usually paid from the operating budget instead of reserves?

Associations normally pay for these from the operating budget: general maintenance and janitorial work, landscaping and irrigation repairs, small repairs below the board's cost threshold, items replaced one at a time as they fail (light fixtures, small pumps, small valves, individual doors), interim touch-up painting, duct and drain cleaning, office equipment and trash receptacles. Keeping these small, frequent costs out of reserves keeps the reserve plan focused on the large replacements that drive contribution levels.

What is a long-lived component, and why is it left out of reserve funding?

A long-lived component is not expected to need replacement within the reserve study's 30-year horizon, or has a Remaining Useful Life no one can predict. Examples include foundations, the structural frame, buried utility lines and common area wiring. A reserve study usually lists these components but leaves them out of the funding plan, then re-evaluates them at each update.

Are items owned or maintained by unit owners included in the reserve study?

No. Under the CAI four-part test, a component must be the association's responsibility. Items the governing documents assign to individual owners are excluded from reserve funding, often windows, unit HVAC systems, interior plumbing fixtures or limited common element patios. Property maintained by others, such as a utility, a master association or the city, is also excluded. A good reserve study still lists these items, showing future boards and owners who is responsible for each part of the property.

How should a board decide whether an item is paid from operating or reserves?

Start with the governing documents to confirm the association is responsible for the item. Apply the CAI four-part test, and set a written minimum cost threshold, commonly a few thousand dollars for smaller associations and higher for large ones. Adopt the resulting component list as board policy, and review the list each year when the budget is prepared. Each reserve study update is a natural point to revisit the list with your reserve study provider. A written list shows future boards which fund pays for each component.