Cooperative Housing Corporations, Condominiums, and Homeowners Associations – Funding of Reserve Accounts and Preparation of Funding Plans
SB63 revises Maryland law governing reserve funding for cooperative housing corporations, residential condominiums, and homeowners associations. The bill requires annual budgets to include reserve funding, generally in line with the most recent reserve study or updated reserve study, and requires those reserve contributions to be deposited by the last day of each fiscal year. It also extends the time to reach the reserve funding level recommended in an initial reserve study from 3 fiscal years to 5 fiscal years, and it requires governing bodies to review reserves and the most recent study annually for accuracy.
The bill also expands and standardizes reserve study requirements. It alters the definition of a reserve study to allow governing bodies to set a minimum cost threshold for components, requires square-footage or similar measurements for identified components, and adds a definition for updated reserve studies that analyze work performed, revise cost and life estimates, and identify maintenance contracts. It requires reserve studies and updated reserve studies to be prepared by qualified professionals, made available to owners, summarized with annual budgets, and used to support a new funding plan developed by the governing body in consultation with the reserve study preparer.
For condominiums and homeowners associations, the bill requires the governing body to develop a reserve funding plan that prioritizes health, safety, structural integrity, and essential systems such as plumbing, sewer, heating, cooling, and electrical infrastructure. The plan may use several recognized funding methods, and reserve funds generally may not be used for other purposes unless repaid within five years. The bill also gives governing bodies authority to increase assessments as needed to meet reserve funding requirements, notwithstanding contrary caps or restrictions in governing documents.
SB63 also creates a limited financial hardship exception for cooperatives, condominiums, and homeowners associations. By a two-thirds vote, a governing body may temporarily deviate from reserve funding requirements for one fiscal year, with the option to renew for one additional year, so long as it makes good-faith efforts to resolve the hardship, documents those efforts, and gives owners reasonable notice before the vote. The bill applies different reserve study timing rules depending on when the community was established and where it is located, with special transition rules for older communities in Prince George’s County, Montgomery County, and other counties.
The bill’s impact is to strengthen reserve planning and funding across common-interest communities in Maryland, likely reducing the risk of deferred maintenance and underfunded capital repairs. It imposes new budgeting, reporting, and governance obligations on cooperative boards, condominium councils, and HOA boards, while also giving them some flexibility through hardship determinations and broader discretion in defining reserve-study components and funding methods. The bill passed both chambers with substantial majorities, suggesting general legislative support for the policy, though the hardship provisions and increased assessment authority indicate sensitivity to affordability concerns for owners and associations.
SB63 amends provisions in the Corporations and Associations Article and the Real Property Article governing cooperatives, condominiums, and homeowners associations. It changes reserve study definitions, adds updated reserve study requirements, mandates annual review of reserve adequacy, requires reserve funding plans, and ties annual budgets more directly to reserve study recommendations. It also authorizes associations to levy assessments sufficient to meet reserve funding obligations and creates a temporary financial hardship exception with procedural safeguards and documentation requirements.
The bill appears to have been generally well received in the General Assembly, as reflected by strong third-reading passage votes in both chambers. The vote margins suggest broad bipartisan or cross-faction support for improving reserve funding and long-term maintenance planning in common-interest communities. The absence of committee transcript opposition in the provided record also suggests that the bill was not highly controversial in the recorded discussions, though the inclusion of hardship exceptions indicates lawmakers were attentive to concerns about affordability and implementation.
The main points of contention likely centered on the balance between stronger reserve funding requirements and the financial burden on owners and associations. Associations may have been concerned about mandatory annual funding, the shortened timeline for compliance with reserve study recommendations, and the authority to raise assessments despite caps in governing documents. On the other side, supporters likely emphasized the need to prevent underfunded reserves, deferred maintenance, and sudden special assessments. The bill addresses these tensions by allowing limited hardship-based deviations, requiring good-faith efforts to restore funding, and limiting the duration of any deviation.