Haw. Code R. § 16-107-65 - Calculation of estimated replacement reserves; reserve study; good faith

(a) A board of directors of an association shall calculate the association's estimated replacement reserves based on a reserve study developed in compliance with this section.

(b) The board shall compile a list of the association's assets. If the project's declaration and association's bylaws fail to clearly state whether a particular part of a condominium project is association property, the board may adopt a resolution allocating responsibility for that part to the association, an individual owner, or individual owners. The board's resolution shall be based on chapter 514A, HRS, the project's declaration and the association's bylaws, and any other applicable legal requirements or documents. The resolution shall clearly indicate whether the part in question:

(1) Is an asset of the association;

(2) Is the responsibility of an individual owner or individual owners, but fewer than all owners; or

(3) Is partly an asset of the association and partly the responsibility of fewer than all owners, such as plumbing or electrical system.

The resolution shall state the basis of the board's decision and shall be effective to determine responsibility for replacement reserves for the part in question upon adoption and until changed by the board or by an amendment to the declaration or bylaws.

(c) The board shall determine the estimated useful life of each asset, based on at least one of the following:

(1) The association's past experience with the asset;

(2) Any publication, such as the commission's Condominium Reserve Reference Manual; "Life Cycle Cost Data" (McGraw-Hill, New York); or "Repair & Remodel Quarterly" (Marshall & Swift, Los Angeles), which provides statistics of the estimated useful lives of items similar or comparable to the asset;

(3) The estimate of any Hawaii licensed contractor or an authorized supplier for the asset, any item similar or comparable to the asset, or any materials or services for the asset's upkeep, repair, or replacement; or

(4) Any warranty provided by the supplier, installer, manufacturer, or builder of the asset or any services relating to its installation, upkeep, repair, or replacement.

(d) The board shall calculate the estimated capital expenditure or major maintenance required for each asset, based on at least one of the following, adjusted for inflation:

(1) The association's past experience with expenses relating to the asset;

(2) Any publication, such as the commission's Condominium Reserve Reference Manual; "Life Cycle Cost Data" (McGraw-Hill, New York); or "Repair & Remodel Quarterly" (Marshall & Swift, Los Angeles), which provides statistics on the estimated capital expenditure or major maintenance, required for the asset or items similar or comparable to the asset; or

(3) The estimate of any Hawaii licensed contractor or an authorized supplier of the asset, any item similar or comparable to the asset, or any materials or services for the asset's installation, upkeep, repair, or replacement.

(e) Each year, the board shall adjust the amount of the estimated replacement reserves for an asset based on reasonable projections for inflation and for interest which will be earned during the estimated useful life of the asset. Adjustments for inflation shall not assume an annual inflation rate less than that of the Honolulu Consumer Price Index for All Urban Consumers for the prior year. Adjustments for interest earned shall not exceed the prior year's average interest rate for Seven-Year United States Treasury Bills.

(f) If a board plans to assess less than one hundred per cent of the association's estimated replacement reserves for a budget year, the association's operating budget for that year, the reserve study, and the association's other records shall clearly and prominently indicate:

(1) The total amount the association's replacement reserve study indicates will be a full replacement reserve for the association at the end of the current budget year; and

(2) The total amount the association will have collected at the end of the current budget year.

(g) Any association, or any apartment owner, director, officer, managing agent, or employee of an association who calculates the association's estimated replacement reserves as provided in subsections (b), (c), (d), and (e) shall be deemed to have acted in good faith if the calculations subsequently prove incorrect; provided that an association board, director, officer, or managing agent must also make the disclosures required by subsection (f) to be deemed to have acted in good faith.

Notes

Haw. Code R. § 16-107-65

[Eff 1/2/95 (Auth: HRS §§ 514A-83.6, 514A-99) (Imp: HRS § 514A-83.6)