New Jersey HOA and Condo Reserve Studies: A 2025 Guide to Mandatory Compliance

The financial landscape for community associations in New Jersey has undergone a dramatic transformation. New legislation (P.L. 2023, c. 214, as amended by S3992) mandates comprehensive capital reserve studies and strict funding minimums for nearly all Condominium Associations (COAs), Homeowners Associations (HOAs), and Cooperatives.

1. Is a Reserve Study Required or Recommended in New Jersey?

This is no longer a question of best practice: A Capital Reserve Study is Mandatory.

The law requires all associations that fall under the Planned Real Estate Development Full Disclosure Act (PREDFDA) to comply. This mandate is intended to ensure associations have adequate funds for the eventual repair and replacement of common assets without relying on sudden, unexpected special assessments.

Who is Covered?

• HOAs (Homeowners Associations)
• COAs (Condominium Associations)
• Co-ops (Cooperatives)
• Master Associations

The Only Exemption

Only an association with less than $25,000 in total common area capital assets is exempt from the requirement. Given the cost of common area elements like pools, clubhouses, roofs, and private roads, this threshold is exceptionally low, meaning almost all multi-unit communities must comply.

2. The Timeline: When Must the Study Be Done?

New Jersey law establishes a clear, recurring cycle for all associations to maintain financial health.

Action Item: If your association's last qualifying reserve study was conducted before January 8, 2019 (more than five years prior to the law's enactment date), you must secure a new study by the January 8, 2025, deadline.

3. The Method: What Kind of Study is Required?

The law explicitly dictates the quality and professional expertise required, making "desktop" or mere "financial updates" insufficient for the mandatory five-year cycle.

Mandatory Onsite Inspection

The study must conform to the latest edition of the National Reserve Study Standards of the Community Associations Institute (CAI) or similar recognized national standards.⁷

Crucially, the statutory language requires an "analysis of the physical status" of the common area components. This means that a comprehensive, professional

onsite visual inspection (equivalent to a CAI Level I or II Study) is required at least once every five years.

Who Must Perform the Reserve Study?

The study must be prepared or overseen by one of the following licensed or credentialed third-party professionals :

1. Reserve Specialist (RS): Credentialed through the Community Associations Institute.
2. Engineer: Licensed by the State of New Jersey (P.E.).
3. Architect: Licensed by the State of New Jersey.

Important Note: Board members, management staff, or volunteers are legally prohibited from preparing the capital reserve study themselves. The requirement for an independent professional ensures the integrity and specialized expertise of both the physical and financial analysis.

Required Content

The final report must include a 30-year funding plan  and reasonable cost estimates for :

• Anticipated costs for repair or replacement necessary to maintain the structural integrity of the buildings.
• The cost of future reserve studies and updates.
• The cost of periodic structural inspections (if applicable to your building type).

4. Mandatory Funding Rules (The S3992 Update)

The most demanding part of the law is the requirement to fund reserves adequately. Recent amendments (S3992, signed August 2025) simplified the compliance path by defining "adequate funding."

Baseline Funding Standard

The state law mandates Baseline Funding. This means the association's 30-year funding plan must project cash flows such that the reserve fund balance is

never projected to fall below zero dollars. The plan must be designed to cover all necessary repairs and replacements

without the need for special assessments or loans.

The Temporary 85% Funding Option

Recognizing the challenge of immediate full compliance, the legislature offered a temporary path for existing associations (those formed before January 8, 2024):

• What it is: Associations may elect to fund their reserves at 85% of the contribution amount recommended by the Baseline Funding plan.
• The time limit: This reduced funding option is limited to a maximum of five (5) fiscal years. After five years, full compliance with a 100% funding plan is mandatory.

Crucial 20-Point Bold Font Disclosure

Boards that choose the 85% option must notify all unit owners. This notification is highly prescriptive and serves as a strict transparency measure. It must be printed in 20-point bold font and explicitly include :

1. A statement that the board chose to fund at 85% of the recommended plan.
2. The exact year in which a special assessment or loan is anticipated as a result of the reduced funding.
3. The expected amount of that special assessment or loan.

Board Risk Alert: Failure to provide this rigorous disclosure could expose individual board members to fiduciary breach claims.

Restrictions on Borrowing from Reserves

Reserve funds are legally protected for capital repair and replacement. If an emergency requires using additional funds beyond the amount allocated for a component, the board must adopt a written resolution to replenish the money. The borrowed amount must be

recovered within the following five (5) fiscal years.

5. Intersections with Structural Integrity Law

The reserve study requirement is directly linked to the state's structural safety laws, creating a dual mandate for certain buildings.

Structural Inspection Requirement (Covered Buildings)

These requirements apply only to structures defined as "Covered Buildings," which are residential condominiums or cooperatives with a primary load-bearing system made of :

• Concrete
• Masonry
• Steel
• Hybrid structures (including heavy timber and buildings with podium decks)

Wood-frame buildings are generally excluded from these specific structural inspection mandates.

Financial Link

For Covered Buildings, the reserve study must account for two mandatory costs:

1. The cost of the required structural integrity inspection (which must be performed by a licensed Structural Engineer).
2. The cost of any corrective maintenance required by the structural engineer's report.

This integration means that structural deficiencies cannot be ignored; they immediately become mandatory, funded items in the association's reserve budget.

6. External Financial Impact: Fannie Mae and Freddie Mac

While state compliance is essential, associations must also meet the often stricter requirements of federal lending agencies to ensure unit owners can easily obtain mortgages.

The 10% Rule vs. The Reserve Study

Fannie Mae and Freddie Mac typically require associations to allocate at least 10% of their total annual budget toward reserves. However, these agencies allow an association to fund reserves at less than 10%

if it can provide a current, credible reserve study that supports the lower contribution amount, and the association is actively funding according to that study.

Risk of the 85% Funding Option

Utilizing New Jersey's temporary 85% funding option presents a high risk to a project’s eligibility for federal loan programs. Since the 85% plan is based on the anticipation of a future special assessment , this intentional underfunding may signal financial instability to lenders. Boards must understand that compliance with the state's temporary 85% rule does

not guarantee federal mortgage eligibility.

7. Governance, Risk, and Forthcoming Changes

Board and Manager Duties

The executive board must formally commission, review, approve, and adopt a compliant 30-year funding plan. Property managers are responsible for the operational implementation, including ensuring the correct reserve contribution is included in the annual budget and that all mandatory disclosures (especially the 20-point bold font notice) are executed perfectly.

Penalties and Personal Liability

Failure to comply with DCA orders related to reserve and structural integrity laws can lead to serious consequences :

• DCA Enforcement: The Department of Community Affairs (DCA) can issue administrative orders and injunctions to compel compliance.
• Personal Fines: The DCA may impose monetary fines on individual board members, not to exceed $5,000 per violation, if they are found solely responsible for continued failure to comply with a DCA order.
• Civil Liability: Non-compliance constitutes a breach of fiduciary duty, opening the door for unit owners to file civil lawsuits.

Forthcoming Changes to Watch

The major compliance laws (P.L. 2023, c. 214 and S3992) are now enacted and operational. The primary action on the horizon will be the Department of Community Affairs (DCA) issuing formal administrative regulations. These regulations are expected to provide standardized definitions and clarify procedures, especially regarding the coordination between structural engineers and reserve specialists, so professionals must monitor the New Jersey Register for updates.

‍