A reserve study is a comprehensive analysis of your association's common elements—their current condition, expected useful life, and replacement costs. It answers a fundamental question every condo board must face: Do we have enough money saved to replace our roof, repave our parking lot, and maintain our building when those major expenses come due?

Reserve studies have two main components:

1. Physical Analysis

A qualified professional inspects all common elements—roofs, HVAC systems, elevators, parking surfaces, pools, exterior siding, and more. They assess current condition and estimate remaining useful life.

2. Financial Analysis

Based on the physical findings, the study calculates how much money the association needs in reserves to fund future replacements and major repairs. It provides a funding plan showing whether current contributions are adequate or if adjustments are needed.

Why this matters for Tennessee condo owners: Without a reserve study, boards are essentially guessing. Some associations discover they're severely underfunded only when a major component fails. The result? Special assessments that can run into thousands of dollars per unit—sometimes with little warning.

We've seen Franklin-area condo associations face $15,000+ per-unit special assessments because previous boards didn't plan for a roof replacement. A reserve study might have identified this funding gap years earlier, allowing for gradual contribution increases instead of sudden financial shock.

Tennessee Senate Bill 863 (also referenced as HB750 in the House) established specific reserve study requirements for condominium associations. Here are the key provisions board members need to understand:

Who Must Comply

The law applies to condominium associations governed by the Tennessee Horizontal Property Act or Tennessee Condominium Act. Traditional HOAs (homeowners associations for single-family homes) are not covered by this specific mandate, though reserve studies remain a best practice for all associations.

Timeline Requirements

• Initial Study: If your condo association has not conducted a reserve study since January 1, 2023, you must complete one under the new requirements.
• Updates: Reserve studies must be updated at least every five (5) years.
• Effective Date: The law became effective January 1, 2024.

What the Study Must Include

While the law doesn't prescribe every detail, a compliant reserve study should address:

• Identification of all major common element components
• Current condition assessment of each component
• Estimated remaining useful life
• Estimated replacement or major repair costs
• Current reserve fund balance
• Recommended funding plan

Disclosure Requirements

Associations must make the reserve study available to unit owners upon request. This transparency requirement helps prospective buyers understand the association's financial health before purchasing.

Important note: The law establishes the requirement but doesn't specify penalties for non-compliance. However, failure to conduct required reserve studies could expose board members to breach of fiduciary duty claims, particularly if the association later faces funding shortfalls that a study would have identified.

One of the first questions boards ask: "How much will this cost?" The answer depends on your community's size and complexity, but here are realistic expectations for Middle Tennessee condo associations:

Typical Cost Ranges

Community Size	Typical Cost Range
Small (10-30 units)	$2,500 - $4,500
Medium (31-75 units)	$4,000 - $7,500
Large (76-150 units)	$6,000 - $12,000
Very Large (150+ units)	$10,000 - $20,000+

Factors that increase costs:

• Multiple buildings or complex layouts
• Specialized amenities (pools, fitness centers, elevators)
• Older construction requiring more detailed assessment
• No existing component inventory (starting from scratch)
• Full reserve study vs. update of existing study

What's Included in the Price

A quality reserve study from a reputable firm typically includes:

• On-site physical inspection
• Component inventory with photos
• Condition assessment and useful life estimates
• Financial analysis with 30-year projections
• Funding recommendations (cash flow vs. component methods)
• Written report suitable for board review and owner disclosure

Budget tip: Some management companies have relationships with reserve study professionals and may be able to coordinate competitive pricing. At Verdei, we work with established reserve study firms serving Middle Tennessee and can help facilitate the process for communities we manage.

Not all reserve study providers are created equal. Here's what to look for when selecting a firm for your Tennessee condo association:

Professional Credentials

Look for providers with recognized industry credentials:

• Reserve Specialist (RS) designation from Community Associations Institute (CAI)
• Professional Reserve Analyst (PRA) designation from the Association of Professional Reserve Analysts (APRA)
• Licensed engineers or construction professionals with reserve study experience

Tennessee Experience

A provider who works regularly in Tennessee understands:

• Local construction costs and contractor availability
• Regional climate impacts (our freeze-thaw cycles, humidity, severe weather)
• Tennessee-specific legal requirements under SB863
• Common construction types and materials in Middle Tennessee

Questions to Ask Potential Providers

1. How many reserve studies have you completed in Tennessee?
2. What professional certifications do your analysts hold?
3. Will you conduct an on-site inspection, or is this a "desktop" study?
4. What's included in the final deliverable?
5. Do you provide a presentation to the board?
6. What's your timeline from engagement to final report?
7. Do you offer update studies at reduced rates?

Red Flags to Avoid

• Extremely low pricing (may indicate shortcuts or lack of on-site inspection)
• No professional credentials or references
• Unwillingness to visit the property
• Vague scope of work or deliverables
• No Tennessee experience

Here's a practical timeline for Tennessee condo boards implementing SB863 compliance:

Step 1: Assess Your Current Situation (Week 1-2)

• Review records: Has a reserve study been conducted since January 1, 2023?
• If yes, confirm it meets current standards and note the update deadline
• If no, proceed with commissioning a new study
• Gather existing documentation: building plans, maintenance records, previous studies

Step 2: Budget and Authorize (Week 2-4)

• Obtain 2-3 quotes from qualified reserve study providers
• Review board authority to engage: check if budget line item exists or if special approval needed
• Present options to board and vote to authorize engagement
• Identify funding source (operating budget, reserve fund transfer, or special budget item)

Step 3: Engage Provider and Prepare (Week 4-6)

• Execute engagement agreement with selected provider
• Provide requested documentation (governing documents, financial statements, prior studies)
• Schedule on-site inspection date
• Arrange access to all common areas for inspector
• Consider having a board member or manager accompany the inspector

Step 4: Inspection and Analysis (Week 6-10)

• On-site inspection typically takes 2-4 hours for small communities, full day for larger ones
• Provider completes physical assessment and photographs components
• Financial analysis prepared based on findings
• Draft report developed

Step 5: Review and Finalize (Week 10-12)

• Receive draft report and review for accuracy
• Request corrections or clarifications as needed
• Provider presents findings to board (in person or virtual)
• Final report delivered

Step 6: Implementation (Ongoing)

• Review funding recommendations at next budget cycle
• Adjust reserve contribution if needed (may require owner notice)
• Make study available to owners per disclosure requirements
• Calendar the five-year update deadline

Total timeline: Expect 10-14 weeks from initial planning to final report delivery. Budget cycles may affect when funding recommendations can be implemented.

Your reserve study will recommend a funding approach. Understanding these methods helps boards make informed decisions:

Baseline Funding

Also called "threshold funding," this approach keeps the reserve fund at the minimum level needed to avoid running out of money over the study period. The fund balance may approach zero before recovering.

Pros: Lower contributions in the short term
Cons: Little cushion for unexpected expenses; may require special assessments if costs exceed projections

Full Funding (100% Funded)

This method aims to accumulate reserves equal to the total depreciated replacement value of all components. If your components are 50% through their useful life, you'd have 50% of replacement cost saved.

Pros: Strong financial position; ready for any replacement
Cons: Higher contributions; may accumulate more than necessary for some components

Threshold or Percent Funded

Many associations target somewhere between baseline and full funding—often 70-80% funded status. This provides reasonable cushion without maximizing contributions.

What We Recommend for Tennessee Condos

Based on our experience managing Middle Tennessee communities, we generally recommend targeting at least 70% funded status. This provides:

• Adequate cushion for cost overruns or accelerated component failure
• Financial flexibility for unexpected needs
• Attractive financial position for prospective buyers
• Reduced likelihood of special assessments

That said, every community's situation differs. A newer community with recently replaced components might justify lower reserves, while an aging community facing multiple major expenses should consider higher targets.

In our work with Middle Tennessee condo associations, we've observed several recurring mistakes boards make with reserve studies:

Mistake 1: Treating It as a One-Time Event

A reserve study isn't a box to check and forget. Components age, costs change, and circumstances evolve. The five-year update requirement exists for good reason—and interim reviews may be warranted if significant changes occur.

Mistake 2: Ignoring the Recommendations

The study is only valuable if the board acts on its findings. If the study recommends increasing contributions by $50/month per unit, delaying that decision doesn't make the funding gap disappear—it makes it worse.

Mistake 3: Choosing the Cheapest Provider

A $1,500 reserve study that uses outdated cost data, skips the on-site inspection, or misses critical components creates false confidence. The money "saved" can cost tens of thousands later when reality doesn't match the study.

Mistake 4: Not Communicating with Owners

Owners deserve to understand the association's financial planning. Share reserve study results (or summaries) at annual meetings. Explain why contribution increases are necessary. Transparency builds trust and reduces conflict.

Mistake 5: Raiding the Reserve Fund

Using reserve funds for operating expenses or non-reserve purposes undermines the entire planning process. Reserve funds are designated for specific purposes—treat them accordingly.

Mistake 6: Assuming Insurance Covers Everything

Insurance covers sudden, accidental damage—not normal wear and replacement. Your roof needs replacement after 25 years? That's reserves, not insurance. Don't confuse the two in your planning.

If you're a Tennessee condo association board member, here's what to do now:

1. Check your records: Has a compliant reserve study been conducted since January 1, 2023?
2. If no study exists: Begin the provider selection process immediately. Budget for the study in your next cycle if not already allocated.
3. If a study exists: Confirm it meets SB863 requirements. Calendar the five-year update deadline. Review whether the funding recommendations have been implemented.
4. Consult your management company: Professional managers can help coordinate the reserve study process and ensure compliance.

Reserve planning isn't glamorous board work, but it's among the most important. The communities that plan ahead avoid the painful special assessments and deferred maintenance that plague associations who don't.

Tennessee's SB863 isn't just a mandate to follow—it's an opportunity to get your association's financial house in order. Take advantage of it.