Who Is Really Exempt From New Jersey Reserve Studies?

Introduction

New Jersey’s reserve study law has created a simple question that is surprisingly hard to answer in practice:

“Is our association exempt?”

The statutes and the Department of Community Affairs (DCA) FAQ say that most common interest communities must complete a capital reserve study and 30-year funding plan, with a narrow exemption for associations that have less than 25,000 dollars in total common area capital assets.

This article explains who is clearly exempt, where the grey areas sit, and why betting on exemption can easily backfire on your association’s finances and on the board’s liability.

Quick recap of New Jersey’s reserve study rule

New Jersey’s reserve study legislation, including Senate Bill S2760 and follow-on amendments, requires:

• A capital reserve study prepared to National Reserve Study Standards by a qualified reserve specialist, engineer, or architect.
• A 30-year funding plan that keeps reserves “adequate,” meaning the association can replace capital assets without relying on loans or special assessments except in unusual cases.
• Updates at least every 5 years.

The law applies to:

• All condominium associations
• All cooperatives
• Planned real estate developments (HOAs) with 25,000 dollars or more in common area capital assets

Only one group is explicitly exempt, which we will cover next.

For a deep dive into the statute itself, you can reference our New Jersey Reserve Study Law & Requirements guide.

Who is clearly exempt under the 25,000 dollar rule?

The exemption is written directly into N.J.S.A. 45:22A-44.2:

“This section shall not apply to an association of a planned real estate development with less than 25,000 dollars in total common area capital assets.”

From the DCA FAQ, “common area capital assets” refers to significant, long-lasting shared property such as roofs, paving, pools, clubhouses, elevators, and similar items, including exclusive-use areas like balconies and parking spaces.

In plain language, this means:

• Small planned real estate developments that truly have almost no shared capital items can be exempt.
• Typical examples might be a very small single-family subdivision where the association has only a monument sign and minimal landscaping and where the total replacement cost of all shared assets is under 25,000 dollars.

Important limitations:

• Condominiums and co-ops are not exempt, even if their assets are under 25,000 dollars. Every condo and co-op must complete a reserve study and 30-year plan.
  
  
• The 25,000 dollar threshold applies to total replacement cost of all common area capital assets combined, not to individual components. A small number of modest components can easily push you over the line.

What does not create an exemption?

Many boards assume they are exempt because of facts that actually have nothing to do with the reserve study rule. The DCA and several law-firm and industry summaries are clear on this point.

Being in any of the following situations does not automatically exempt you from reserve study requirements:

• Your building is not a “covered building” for structural integrity inspections.
• Your community is mostly townhomes instead of high-rise concrete structures.
• You are a small association with fewer than a certain number of units.
• Your developer previously provided a reserve schedule during transition.
• You have never done a formal study before.

The DCA FAQ specifically notes that communities that are not “covered buildings” for structural inspections are still required to perform a capital reserve study and funding plan unless they meet the 25,000 dollar asset exemption.

Grey areas that trap boards

In practice, many “we must be exempt” assumptions break down once you list your assets and price them realistically. A few examples:

• A 40-home townhome community with asphalt drives, concrete walks, perimeter fencing, and a small playground. Once you add replacement costs for paving, play equipment, and fencing, total capital assets often exceed 25,000 dollars.
• A cluster of small condo buildings with limited amenities. Even without a clubhouse or pool, roofs, siding, balconies, and parking areas usually push the total above the threshold.
• An older subdivision with private roads and stormwater systems. Road replacement alone can blow past 25,000 dollars.

Why betting on exemption is risky

Even if you believe you are exempt under the 25,000 dollar threshold, there are several reasons why relying on that status can be dangerous.

1. Financial shocks

Without a reserve study, you are effectively guessing about future capital costs. That makes it easy to drift into:

• Large special assessments
• Emergency loans
• Deferred maintenance that turns minor issues into major failures

The statute is designed to prevent exactly those scenarios by requiring a structured 30-year funding plan.

2. Board liability

The DCA FAQ points out that boards have a fiduciary duty to manage reserves prudently and that choosing not to comply with reserve study requirements can expose the association and individual directors to civil liability.

If your community later argues that the board should have foreseen a roof or roadway failure, “we thought we were exempt” is not a strong defense.

3. Lender and buyer expectations

Even where state law provides an exemption, lenders, insurers, and buyers may still expect a current reserve study:

• Mortgage lenders increasingly ask for reserve information as part of project approval.
• Buyers’ attorneys and real-estate agents will look for structured reserve planning, especially after high-profile building failures in other states.

Associations that cannot show a professional study can lose transactions or be forced into rushed, expensive consulting work at the worst possible time.

4. Moving legal target

New Jersey’s reserve requirements have already been amended once through S3992, including clarifying “adequate” funding and adding an 85 percent temporary funding option for some associations.

Future legislative sessions may tighten exemptions or enforcement. A board that stays ahead of standards will have fewer unpleasant surprises than one that waits until the law changes again.

How to check if your association truly qualifies as exempt

If your board believes you may be under the 25,000 dollar threshold, work through a simple structured review:

1. Confirm your legal structure - Are you a condominium or co-op? Then you are not exempt. If you are a planned real estate development under PREDFDA, the threshold may apply.
2. List every common area capital asset - Include roofs, siding, balconies, windows where the association is responsible, paving, sidewalks, retaining walls, stormwater systems, playgrounds, fences, signage, lighting, clubhouses, and pools.
3. Estimate replacement costs - Use realistic current replacement costs, not original construction prices. A reserve professional or contractor can help benchmark major items.
4. Add up the total - If the combined replacement cost of all common area capital assets is at or above 25,000 dollars, you are in the “must study” category.
5. Document your reasoning - Keep written records of your calculations and any professional opinions, in case owners or future boards question the decision.

For many communities, this exercise quickly reveals that they are over the threshold and need to comply with the full New Jersey reserve study requirements.

When an “exempt” association should still order a reserve study

Even if you truly fall below the 25,000 dollar line, there are strong reasons to commission at least a scaled-down study:

• You have one or two big-ticket items, such as a private entrance road or masonry walls, that would be painful to replace without planning.
• Your board wants objective guidance for reserve contributions instead of guessing.
• You are preparing for developer turnover or a major capital project and want a neutral third-party assessment.

National guidance from the Community Associations Institute suggests that reserve studies are best practice for boards that want predictable assessments and fewer special assessments, regardless of statutory requirement.

‍