A guide to your NJ reserve study

This article is provided for informational purposes only and should not be considered legal or financial advice. Laws and regulations frequently change, and each community’s circumstances are unique. Always consult a qualified attorney and your property management partner before making any decisions regarding your association.

As a board member, one of your top responsibilities is to maintain and improve the homeowners association (HOA) reserve funds of the community (or communities) you manage. With the passage of P.L. 2023, c. 214 in 2024, many condominium and cooperative associations in New Jersey, along with some HOAs structured as planned real estate developments under the Planned Real Estate Development Full Disclosure Act (PREDFDA), must now conduct and update reserve studies at least every five years to protect the financial health of their communities.

HOA reserve funds in New Jersey are community savings accounts that serve as a cushion — protecting your association’s finances from the burden of necessary future expenditures. By design, a reserve account grows over time through regular funding that comes from a percentage of your association’s dues.

But it can be tricky to budget for new amenities like a dog park or gate houses, or shared, common-area assets that will need to be replaced or upgraded years down the line, such as roofing or building facades. The good news is, by partnering with an experienced property management company like FirstService Residential that knows how to put effective reserve funding strategies in place, your board can properly plan for these eventualities and avoid, as much as possible, having to impose special assessments.  
 

What is an NJ reserve study?

A reserve study is a detailed financial analysis designed to help HOAs and condo associations plan for major capital expenses. This study provides a long-term funding strategy to cover the cost of significant repairs and replacements.

Unlike an annual budget, which accounts for routine operational expenses, a reserve study focuses on projected capital expenditures that will arise over time. Its primary goal is to help associations determine how much money should be set aside in their reserve fund to meet future obligations without relying on emergency assessments or excessive fee increases.

If you would like more information about effective budgeting strategies and best practices, download our budget guide, 8 secrets to a better association budget process, today. 
 

NJ reserve study requirements

Under P.L. 2023, c. 214, associations of planned real estate developments, including condominium and cooperative associations and potentially some HOAs, may be required to conduct reserve studies every five years if they manage at least $25,000 in common-area capital assets.

Structural inspection requirements apply only to "covered buildings," which are condominium or cooperative buildings with primary load-bearing systems made of concrete, masonry, steel, or hybrid structures. These mandates may not apply to HOAs, unless they govern condominium or cooperative buildings meeting this definition.

Reserve studies must conform to the National Reserve Study Standards (NRSS) established by the Community Associations Institute (CAI) or similar recognized national organizations. The study must be performed or overseen by a credentialed Reserve Specialist (RS) through CAI, a licensed engineer (PE), or a licensed architect (RA).

The law also requires that associations adequately fund their reserves in accordance with the projections outlined in their study. This means associations must take proactive steps to maintain a financial cushion sufficient to cover anticipated repairs and replacements without resorting to sudden fee increases or special assessments.

Failure to comply with these legal requirements could lead to financial shortfalls and potential legal disputes if reserve funding is deemed insufficient to cover necessary repairs.
 

Which properties are exempt from NJ reserve study requirements?

Certain properties may be exempt, but exemptions vary depending on whether they apply to structural inspections or reserve studies:

• Exempt from structural inspections: The law’s structural inspection mandate applies only to "covered buildings," meaning condominium or cooperative buildings with a primary load-bearing system made of concrete, masonry, steel, or a similar hybrid structure. Single-family homes, rental buildings that are not condos or co-ops, and primarily frame-built townhome communities typically do not fall under these structural inspection requirements.
   
• Exempt from reserve studies: A community association must still conduct a reserve study unless it has less than $25,000 in total common-area capital assets. Even if a property is exempt from structural inspections, it may still be required to perform a reserve study if it meets the financial asset threshold.

Because exemptions can vary, associations should consult with a qualified attorney or industry professional to determine their obligations under the law.
 

Reserve study process

Step 1: Structural inspections and common element evaluation

For communities with covered buildings, New Jersey communities must conduct comprehensive structural inspections as part of their reserve study, focusing on:

• Primary load-bearing systems (columns, beams, and structural supports).
   
• Building envelopes (roofs, facades, balconies, podium decks).
   
• Mechanical systems (HVAC, plumbing, electrical, elevators).
   
• Exterior elements (pavement, sidewalks, parking garages).

The law specifically requires that a licensed structural inspector perform these evaluations, which must be documented in an official written report.

Covered condominium and cooperative buildings made of concrete, masonry, steel, or a similar hybrid must have their first licensed structural inspection within 15 years after receiving a Certificate of Occupancy, or by January 2026 if they were already more than 15 years old on January 8, 2024. The second inspection can take place up to 10 years after the first, and all subsequent inspections must occur at least every five years. If noticeable damage occurs at any point, the association must arrange an inspection within 60 days.
 

Step 2: Life cycle and maintenance analysis

A detailed condition assessment determines:

• The remaining useful life of major components.
   
• Projected repair and replacement costs.
   
• Any immediate structural concerns requiring corrective action.

If the inspection identifies structural risks, the association must complete corrective maintenance as required in the inspector’s report.
 

Step 3: Financial forecast and funding plan

The reserve study includes a 30-year financial projection, outlining:

• Estimated annual contributions required to maintain full funding.
   
• Reserve account balance tracking to prevent shortfalls.
   
• Funding strategies to avoid financial hardship for homeowners.

NJ reserve fund deficiencies and compliance deadlines

If a reserve study identifies that an association’s reserve funding is insufficient, New Jersey law sets clear deadlines for addressing the deficiency:

• Communities facing a shortfall that would require an increase of more than 10% in their annual budget must correct the issue within the earlier of 10 fiscal years or the date when the reserve study projects the reserve balance would drop below zero.
   
• If the required budget increase is 10% or less, the deficiency must be resolved within two fiscal years.

Additionally, if the association spreads corrections over up to 10 years, the law mandates that the annual reserve funding increase be equal in each of those years.

To comply with these funding mandates, board members must take proactive measures to strengthen their reserves. The most common solution is to adjust the association’s annual reserve contributions, gradually increasing assessments over a multi-year period to avoid sudden financial strain on homeowners. Boards may also explore budget reallocations to direct surplus operating funds into the reserve account. In some cases, communities with severe shortfalls opt to secure short-term financing to cover immediate capital needs while phasing in higher reserve contributions over time.

Preventative maintenance also plays a critical role in mitigating future reserve deficiencies. By proactively addressing maintenance issues and adhering to a well-structured reserve funding plan, associations can minimize long-term repair costs and reduce the risk of financial instability.

A good property management company can offer sound guidance on establishing and maintaining funding of your reserves. At FirstService Residential, it is an essential component of the support we offer communities for successful, long-term financial planning. Contact us today for more information.