Five years atfer Surfside, reserve studies have moved from optional housekeeping to core risk governance — and New Jersey just made recurring studies the law. Here’s the broker’s read on what changed, why underwriters care, and how to position HOA and condo D&O accounts.
In the five years since the Surfside condominium collapse on June 24, 2021, reserve planning has moved from a background budget line to a central concern for common-interest communities. For boards — and for the brokers who place their coverage — reserve studies are no longer optional. They protect building safety, inform buyers, support lenders and insurers, and help boards manage long-term capital obligations before those obligations turn into crises.
Despite the benefits, boards otfen avoid reserve studies — afraid of what they might find, or simply treating them as unnecessary. New Jersey decided to stop leaving that to chance. Its recurring reserve-study requirement is the kind of framework other states are now studying, and it carries direct implications for how HOA and condo directors & officers (D&O) risk gets underwritten.
THE SHIFT
What changed — and why it matters
In January 2024, New Jersey enacted Section 45:22A-21 of the Planned Real Estate Development Full Disclosure Act. For associations with more than $25,000 in total common-area capital assets, the law requires a comprehensive capital reserve study with a 30-year funding plan, prepared by a licensed architect, engineer, or credentialed reserve specialist, and updated at least every five years. 2025 amendments added detail on acceptable funding approaches and owner-notice requirements where an association funds at 85% of the plan for a limited period.
In short: New Jersey turned what had been a best practice into a legal obligation. With many associations now entering their first five-year update cycle, the value of consistent administrative discipline is becoming evident — and other states with aging condo stock are watching.
Why reserve studies earn their keep
A reserve study is a professional assessment of an association’s common elements — roofs and membranes, façades, windows, balconies, elevators, garages, sidewalks, pools, HVAC, and electrical and plumbing systems. It identifies which components are aging, how long they’re expected to last, what replacement will cost, and how much the association should be saving along the way. Done well, it does four things at once:
- Surfaces danger early. Water infiltration, corrosion, façade deterioration and aging roof systems worsen out of sight. A study catches them before they become emergencies.
- Spreads cost over time. A 30-year capital schedule replaces crisis special assessments and emergency borrowing with disciplined, predictable budgeting.
- Powers disclosure. Buyers, lenders and insurers can finally judge whether an association is adequately funded and what’s coming — cutting off misrepresentation claims and stalled deals.
- Strengthens the board’s defense. Retaining a qualified professional helps a board show it acted reasonably — the heart of its fiduciary protection.
Governance and liability go together
Consider a common pattern: Study A flags a porous, weather-worn roof membrane and recommends budgeting for replacement. The board delays. Years later, Study B quietly omits the membrane even though the underlying condition was never fixed. In New Jersey, removing a known, unaddressed item from an updated study can be a violation of the law — and worse, it leaves the building less safe while ongoing infiltration threatens interior structure. That’s not just poor planning; it’s an avoidable source of D,O exposure. Boards that skip studies altogether may have fewer defenses if a preventable loss occurs.
“In the post-Surfside era, recurring reserve planning isn’t overregulation. It’s prudent stewardship — and underwriters increasingly price it that way.”
CONTEXT LENDERS & REGULATORS WATCH
The wider regulatory and credit picture
Surfside investigation
Federal/NIST work has centered on pool-deck and garage slab and column connections, with final reporting stretching through 2025–2026. The event catalyzed statutory change and lender scrutiny nationwide.
Florida milestone inspections & SIRS
Florida’s SB 4-D (2022) created statewide milestone inspections and structural integrity reserve studies for condos of three or more stories; SB-154 (2023) and later updates tightened the inspection and reserve regime.
Fannie Mae / Freddie Mac overlay
Condo projects typically must allocate at least 10% of annual budgeted assessment income to replacement reserves — or pass a recent professional reserve study validating adequacy. Lenders actively review reserve sufficiency, which directly affects unit sales and refinancing.
Scale of exposure
Community associations total roughly 373,000 by year-end 2025, housing 78.1 million residents — so reserve sufficiency carries economy-wide credit and insurance implications.
FOR RETAIL BROKERS
The D&O playbook tied to reserve-study compliance
Strong reserve governance is now a selling point with management-liability underwriters. Use these moves to frame the account, sharpen the coverage, and coach the board.
Build the submission
- Lead with the reserve package: latest study (full + executive summary), last-update date, five-year calendar, 30-year schedule, and current balance vs. recommended funding.
- Budget evidence: adopted budget showing contributions that match the study — or NJ’s 85% funding election with the owner notice and timeline attached.
- Lender readiness: show the budget meets secondary-market expectations — a signal of financial discipline to D&O underwriters.
- One-page capital plan mapping near-term items (roof, balconies, façade, garage, elevators, HVAC) to funding and timelines, with bids where available.
- Governance packet: minutes adopting the study, vendor credentials (PE/RA/reserve specialist), and proof of annual board review.
Negotiate the coverage
- Broad, primary non-monetary / injunctive relief coverage for enforcement and architectural-review disputes.
- Narrow failure-to-maintain exclusions or carve-backs where a study-backed plan is followed; avoid sweeping infrastructure exclusions.
- Insured-vs-insured carve-backs for derivative/member suits, whistleblowers, and manager claims.
- Property manager as additional insured — harmonized with their own E&O to avoid finger-pointing.
- Defense outside limits, soft/no-hammer provisions, and panel-counsel flexibility for CIRA specialists.
- Full prior acts; avoid warranties tripped by deferred-maintenance now visible in the study. Add EPL, Crime/Fidelity, and a small cyber limit.
Coach the board
- Calendar the five-year update and annual budget alignment; pass a resolution affirming adherence to the funding plan (or the 85% method with notices).
- Close the loop: track every critical recommendation to completion. If deferred, minute the rationale, interim safeguards, and a new timetable.
- Lender-aware budgeting: meet or exceed the 10% reserve-contribution test — or keep the documented professional basis for funding below it.
- Maintain a buyer/owner due-diligence packet (study, inspections, budgets, assessment history), refreshed annually.
USE ON THE CALL
Talking points for underwriter calls
“We operate on a five-year reserve-study cycle reviewed by a PE/RA or credentialed specialist; the 30-year plan is embedded in our annual budgets.”
“Critical components — roof, façade, balconies, garage, HVAC — are tracked with dates, bids and cash flow. No quiet deterioration.”
“Our budget satisfies agency reserve standards, supporting unit liquidity and signaling financial discipline.”
“Owner communications and resale packets include the latest reserve study and inspection reports to reduce dispute frequency and severity.”
Key references for proposals & renewals
New Jersey PEDFDA reserve-study / 30-year funding requirements (eff. Jan 8, 2024; 2025 amendments). NJ DCA statutory PDF — nj.gov
Florida SB 4-D (2022) milestone inspections & SIRS regime (with SB-154, 2023). — flsenate.gov
CAI Foundation 2025 Statistical Review — 78.1M residents in community associations. — foundation.caionline.org
Fannie Mae Selling Guide & Freddie Mac FAQs on condo reserve / budget expectations. — selling-guide.fanniemae.com
Surfside investigation reporting (NIST / national outlets) for risk context. — cbsnews.com
Source article: “How Reserve Studies Fit Into Condo Association Compliance,” Willner, Dimitro & Baker, Law360 (June 23, 2026).