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August 28, 2025
State Grants Relief For Associations' Struggling With Reserve Fund Shortages
New Jersey has modified the reserve funding requirements for community associations to give associations more flexibility in bringing their capital reserve accounts up to required levels. On August 21, 2025, Governor Murphy signed into law legislation modifying the “Structural Integrity Law” (NJ S 3992 P.L. 2025, c. 132 ). In particular, this new legislation makes several changes to the statute regarding reserve funding. It is effective immediately.
Alternate Funding Plans Permitted, Provided the Fund Never Falls Below Zero
The new law makes clear that reserve funding requirements apply to all types of associations with at least $25,000 in total common area capital assets, not just “covered buildings” constructed in a certain manner. It also adds a definition of “adequacy” regarding the amount of money that must be maintained in a reserve account to comply with the statute. “Adequate” is the amount of money held by an association which, in accordance with the professional’s standards (engineer, reserve specialist, etc.), is sufficient so that the association’s reserve fund will not fall below zero dollars during the association’s 30-year funding plan. However, a reserve study also may include additional funding plans with a minimal balance greater than zero or with escalating annual contributions.
The law eliminates the requirements when borrowing from the reserve fund, taking a loan or for additional assessments to increase a short-funded reserve fund, but it requires that a reserve fund be funded in accordance with one of the funding plans in the most recent reserve schedule. A reserve study still must be performed every five years.
85-Percent Funding Alternative Allowed for Limited Time
However, for up to five years from the effective date of this amendment, the law allows an association that existed prior to the effective date of the original statute to fund reserves during any year at only 85 percent of one of the funding plans, subject to certain notice requirements. In such a case, prior to the adoption of the budget, the association must provide notice to all members in 20-point bold font that the board has made this election, that a special assessment or loan is anticipated as a result of this reduced funding, and the expected year and amount of the anticipated assessment or loan. In addition, prior to the execution of any contract for sale of a unit in the development, the seller must provide to the prospective buyer a copy of the most recent notice.
After that initial five-year period, the 85-percent funding alternative will no longer be available; the reserves must be funded according to a funding plan set forth in a reserve study. In addition, each association created after the effective date of the initial statute must fund its capital reserves consistent with the most recent capital reserve study.
If you have any questions regarding the new law and what is required, do not hesitate to contact us.
Link to the full legislation:
NJ Legislature- Bill S3992
