New Jersey Reserve Study Law and Reserve Funding Requirements: S2760 / S3992 Compliance Guide

Overview of New Jersey’s reserve study law

New Jersey’s Structural Integrity and Capital Reserve Funding Law (S2760/A4384) amended the Planned Real Estate Development Full Disclosure Act (PREDFDA) to require capital reserve studies and structured reserve funding for most community associations. 

The core idea is straightforward: boards must know what their long-lived common components will cost to repair or replace, and must collect money over time so that those costs can be paid without relying on emergency loans or special assessments. (Justia Law)

At its heart, the law requires each association of a planned real estate development to undertake and fund a capital reserve study that assesses the adequacy of its reserve funds relative to the anticipated cost of replacing or repairing the association’s “capital assets” - roofs, façades, roads, garages, elevators, amenities, and other major elements that the association is obligated to maintain. 

The statute ties reserve planning directly to structural safety by requiring the reserve study to incorporate the cost of structural inspections and related corrective work.

Who must comply in New Jersey

The law applies broadly to “associations of planned real estate developments,” which captures:

• Condominium associations governed by the New Jersey Condominium Act.
• Cooperative corporations with residential units.
• Homeowners associations that fall under PREDFDA and have at least $25,000 in total common area capital assets.

The $25,000 threshold is important for smaller HOAs. Associations that truly have less than $25,000 in total common area capital assets - for example, a very small subdivision with minimal shared infrastructure - are exempt from the capital reserve study requirement. 

However, the DCA guidance makes clear that “common area capital assets” is interpreted broadly and includes building exteriors, common roofs, parking areas, amenities, and exclusive-use common elements like balconies and decks. 

Many boards underestimate this total and should assume they are covered unless a qualified professional confirms otherwise.

Timing and frequency of reserve studies

For existing associations, the law established a short window to get into compliance:

• If your association had not undertaken a reserve study within the five years before January 8, 2024, you were required to complete a study within one year of that effective date (by January 8, 2025).
• If you completed a reserve study in the previous five years, you are considered current, but you must update and review the study at least once every five years thereafter.

For new associations, the trigger is transition to homeowner control:

• A new condominium, co-op, or HOA formed after January 2024 must undertake a capital reserve study as soon as practicable after the election of a majority of the board by unit owners, and in any event no later than two years after that election.

These timing rules mean that “waiting until later” is no longer an option. If no capital reserve study exists or your last one is older than five years, your board should treat completing a compliant study as an urgent legal and fiduciary priority.

What a New Jersey capital reserve study must include

New Jersey does not allow boards to improvise their own format. By statute and DCA guidance, every capital reserve study must:

• Be prepared in conformity with the latest edition of the National Reserve Study Standards issued by the Community Associations Institute (CAI), or similar standards from another national organization.
• Be performed or overseen by a credentialed CAI Reserve Specialist (RS) or by a New Jersey-licensed professional engineer or architect.
• Analyze the physical condition of the buildings and other common areas the association must maintain.
• Identify all major common-area capital components that will require repair or replacement over the projection period.
• Estimate the remaining useful life and replacement cost of each component.
• Include the cost of future reserve studies, reserve updates, and required structural inspections.
• Produce a 30-year reserve funding plan that demonstrates “adequate” capital reserve funding.

For many boards, the key shift is that the reserve study is no longer just an engineering report. It is now legally tied to how you structure your operating and reserve budgets over a 30-year horizon.

What “adequate” reserves mean after S3992

Initially, S2760 required associations to maintain “adequate” reserves but did not define the term. This led to confusion and concern about how aggressively boards would have to increase assessments. 

The 2025 amendment S3992 addresses this by defining “adequate” or “adequacy” as a funding plan in which the projected balance of the reserve account does not fall below zero at any point in the 30-year funding projection.

In practice, this means:

• Your funding plan can allow the reserve balance to drop to zero in some years, but never negative.
• You are not required to maintain a fixed minimum reserve balance (for example, one year of expenses) unless your association chooses to adopt a stricter internal standard.
• The professional preparing your reserve study must include a “baseline” funding plan that complies with this no-negative-balance test.

This is a more flexible framework than some feared. Boards still must confront underfunding, but the law explicitly allows a well-structured plan that uses the reserve account efficiently over time, as long as the balance never dips below zero in the projection.

Correcting underfunded reserves and the 10-year catch-up rule

Many New Jersey associations were underfunded when S2760 took effect. The law recognizes that jumping to full adequacy in a single budget year is often impossible. 

Under N.J.S.A. 45:22A-44.3, if your association’s reserve funding is inadequate and bringing it to adequacy would require more than a 10 percent increase in the previous year’s common expense assessment (before considering other budget changes), you have up to 10 fiscal years to reach adequacy with equal annual line-item increases to the reserve contribution.

If the required increase is 10 percent or less, the law expects associations to reach adequacy within two fiscal years. This staged approach is designed to avoid shock assessments while still forcing boards to move steadily toward long-term financial health.

The 85 percent funding option: flexibility with strings attached

One of the most important changes for boards is the new 85 percent funding option. S3992 allows an association to fund as little as 85 percent of the reserve contribution recommended by the capital reserve study for up to five fiscal years. However, this option is tightly regulated:

• Before adopting a budget that funds reserves at 85 percent of the chosen plan, the board must send a notice to all unit owners, in at least 20-point bold font, clearly stating that it has elected to fund at 85 percent of the recommended amount.
• The notice must disclose the year in which a special assessment or loan is anticipated as a result of this underfunding and the expected amount.
• Any unit owner selling a unit during that 85 percent funding period must provide prospective buyers with the board’s notice regarding the underfunded plan.
• The association may only use the 85 percent funding option for five fiscal years. After that, it must fully fund the chosen reserve funding plan.

Practically, this means the 85 percent option is a short-term pressure valve, not a permanent discount. Boards that use it should do so with eyes open, understanding that it shifts costs into the future and may make units less attractive to buyers if a large special assessment is expected.

Interaction with structural integrity inspections

The same legislation that created the capital reserve study requirements also introduced stringent structural inspection obligations for certain “covered buildings,” particularly mid- and high-rise condominium and cooperative structures. 

Even where a particular building is exempt from structural inspections, the DCA’s FAQ makes it clear that the capital reserve study obligations under 45:22A-44.2 and 44.3 still apply to the association as a whole, provided it is a PRED and meets the asset threshold. 

For boards, the takeaway is simple: do not assume that you are exempt from reserve study requirements just because your property is low-rise or otherwise outside the structural inspection rules. The reserve law stands on its own and is designed to ensure you can fund the repairs your future inspection reports will identify.

Practical steps for New Jersey boards to comply

To comply with New Jersey reserve study law and protect both the association and board members, we recommend a deliberate, staged approach:

Step 1 - Confirm whether your association is covered.

If you are a condominium or cooperative, you should assume you are covered. If you are an HOA, have your manager, reserve professional, or attorney confirm whether you are a PRED with at least $25,000 in common area capital assets. Err on the side of compliance unless a professional clearly advises otherwise.

Step 2 - Commission a compliant capital reserve study.

If your last reserve study is more than five years old, or if you have never completed one, engage a CAI Reserve Specialist (RS) or New Jersey-licensed engineer or architect with reserve study experience. Confirm in writing that they will follow the National Reserve Study Standards and include all legally required elements (physical analysis, cost estimates, structural-related items, and a 30-year funding plan).

Step 3 - Review funding options with your professional.

Ask your reserve specialist to present at least one fully adequate funding plan (no projected negative balances) and, if necessary, alternative plans that make use of the phased catch-up rules or the 85 percent funding option. Discuss the trade-offs between higher assessments now versus special assessments or loans later.

Step 4 - Document board decisions and owner communication.

Whatever funding strategy you choose, document the board’s reasoning in meeting minutes. If you adopt the 85 percent option, ensure your notices comply with the 20-point bold requirement and clearly explain the consequences for unit owners and buyers. This documentation will be critical if your decisions are later challenged.

Step 5 - Integrate the study into budgeting and project planning.

Use the reserve study as a live planning tool, not a one-time report. Align your annual budget, upcoming projects, and long-term contracts with the 30-year funding plan. When conditions change (major repair, inflation spike, or scope changes), update the study earlier than required instead of waiting the full five years.

How PropFusion helps New Jersey associations with reserve law compliance

The legal framework is complex, but your day-to-day work does not have to be. PropFusion is built specifically to help associations, managers, and reserve professionals manage New Jersey-style reserve requirements:

• Centralized component inventory and cost data aligned with National Reserve Study Standards.
• 30-year funding scenarios that let you compare full funding, phased catch-up, and limited 85 percent options in one place.
• Clear dashboards showing whether you meet New Jersey’s adequacy test (no projected negative reserve balance).
• Scenario modeling so you can see how different assessment levels, inflation assumptions, or project timing will affect your reserves and compliance.
• Easy-to-share reports for boards, owners, lenders, and buyers that reduce confusion about the association’s long-term plan.
  
  

Instead of tracking New Jersey’s reserve study law in spreadsheets and email threads, boards and managers can use a dedicated platform to stay organized, defend their decisions, and minimize the risk of unpleasant surprises.

As always, this guide is informational only and not legal advice. For association-specific questions, work with New Jersey community association counsel and a qualified reserve professional familiar with S2760, S3992, and the DCA’s implementing guidance.