Hawaii Administrative Rules › Title 16 - DEPARTMENT OF COMMERCE AND CONSUMER AFFAIRS › Chapter 107 - RULES RELATING TO HORIZONTAL PROPERTY REGIMES, CHAPTER 514A, HAWAII REVISED STATUTES › Subchapter 6 - REQUIREMENTS FOR REPLACEMENT RESERVES › Section 16-107-72 - Borrowing and special assessments to fund replacement reserves

Current through June, 2024
Provided an association assesses and collects sufficient
				  funds to comply with the law and these rules, the association board may:
(1) Transfer funds between the separate,
				designated funds required by section 16-107-66, subject to the requirements of
				that section;
(2) Borrow funds,
				subject to the requirements of section
				514A-82.3,
				HRS; and
(3) Specially assess the
				apartment owners;
to pay the cost to maintain, repair, or replace assets of
				  the association. This section shall apply if the board underestimates the
				  reserve requirements for an asset, or if the cost to maintain, repair, or
				  replace an asset will reduce the association's replacement reserve funds to
				  less than fifty per cent of a full replacement reserve during any budget
				  year.
Example:
An association's full replacement reserve requirement is
				  $500,000, but the association has only $250,000 of that amount in cash, as the
				  law permits. The association's replacement reserve account designates $200,000
				  of the $250,000 to replace its roof in 2001 (i.e., after the transition period
				  ends on January 1, 2000). In 2001, the association replaces its roof on
				  schedule. If the association spends all of the $200,000 designated in its
				  replacement reserve account for the roof, large assessments will be necessary
				  to re-establish fifty per cent of a full replacement reserve in cash by the end
				  of 2001.
Replacing the roof will reduce the association's replacement
				  reserve requirements during 2001 by $200,000, from $500,000 to $300,000 (to
				  which must be added, however, the funds required during 2001 for the other
				  association assets). Nevertheless, spending the $200,000 will also reduce the
				  association's replacement reserve funds by $200,000, from $250,000 to $50,000
				  (plus whatever the association collects during 2001).
Thus, by the end of 2001, the association will have only
				  $50,000 in reserves, but need at least $150,000 (i.e., fifty per cent of its
				  full replacement reserve requirements of $300,000). Therefore, the association
				  must collect at least
$100,000 by the end of 2001 to reach the minimum replacement
				  reserve of $150,000 (plus whatever else the reserve study indicates is
				  necessary for other assets).
To reduce the hardship, the board can fund the expenses for
				  the roof by borrowing or by special assessments. Even if the association has
				  designated a specific fund in its replacement reserve account for the asset,
				  the board may also transfer the money in that fund to other designated funds.
				  Essentially, the section permits the board to use cash on hand, special
				  assessments, borrowing, or any combination of the three to replace the roof and
				  reduce the hardship on the owners.