South Dakota HOA Reserve Fund Requirements and Reserve Study Guidelines

Legal landscape: South Dakota as a “no-mandate” state

From a statutory perspective, South Dakota is straightforward: there is no law that imposes HOA reserve study requirements, and no law that requires associations to fund reserves. 

Multiple independent summaries - including CAI’s 2023-2024 reserve law charts and professional reserve study firms - explicitly note that “there is no statutory requirement to conduct a reserve study and no statutory requirement to fund reserves” in South Dakota. 

That places South Dakota alongside a number of other states where the legislature has not yet codified detailed reserve obligations. Instead, reserve planning is driven by:

• The association’s governing documents (declaration, master deed, covenants, bylaws).
• General corporate duties under the Nonprofit Corporation Act.
• Market expectations from owners, buyers, and lenders.

Boards that treat “no mandate” as “no responsibility” are courting financial trouble. The legal framework may be light, but the practical expectations are not.

What governs associations in South Dakota?

Condominium associations

Condominiums in South Dakota are governed by the Condominium Law codified in Title 43, Chapter 15A. This chapter covers:

• How a condominium project is established via a master deed.
• The definition and ownership of common areas.
• The role and powers of the council of co-owners.
• Developer obligations, inspection rights, and certain consumer protections. (Justia Law)

The chapter addresses how condos are formed and managed, but it does not prescribe:

• A requirement to adopt a formal reserve study.
• A required reserve funding level.
• Any particular schedule for reviewing long-term capital needs.

Homeowners associations (non-condo communities)

Homeowners associations in South Dakota are not regulated by a single, dedicated HOA statute. Instead, they operate under:

• Their recorded covenants and bylaws.
• The South Dakota Nonprofit Corporation Act (Title 47, Chapters 22-28), because most HOAs are organised as nonprofit corporations.

The Nonprofit Corporation Act establishes:

• How nonprofit corporations are formed and dissolved.
• Director and officer duties and powers.
• Requirements for records, fiscal affairs, and reporting.

Again, it does not impose specific reserve study or reserve funding obligations. But it frames the duties of directors, who must manage the corporation’s assets prudently and in the association’s best interests.

Confirming there is no statutory reserve mandate

Because South Dakota’s own code does not mention reserve studies or funding minimums, boards often rely on compiled state-law charts produced by CAI and others. Those charts, updated as of 2023, clearly state for South Dakota:

• There is no statutory requirement to conduct a reserve study.
• There is no statutory requirement to fund reserves.

Other industry resources aimed at boards and managers repeat the same conclusion: there is no law that imposes HOA reserve study requirements in South Dakota, though individual CC&Rs or bylaws may do so.

The bottom line is that, at the state level, reserve practices in South Dakota are a matter of governance, not statutory compliance.

Governing documents: where your real obligations live

In a no-mandate state, your declaration, master deed, and bylaws take centre stage. It is common to see language that:

• Authorises or requires the association to establish reserve funds for capital repairs and replacements.
• Requires annual budgets to include allocations to reserves.
• Sets conditions for borrowing from reserves or using reserves for non-capital purposes.
• Limits board discretion to slash reserve contributions without member approval.

Boards in South Dakota should:

• Have association counsel review the governing documents for any references to “reserves,” “capital replacement funds,” “major repairs,” or “long-term maintenance.”
• Map those clauses to the annual budget process, ensuring that reserve contributions align with what the documents require.
• Document in board minutes how reserve funding decisions were reached and how they comply with the governing documents.

Where the documents are silent or vague, the board’s fiduciary duty under nonprofit law still requires it to act in the association’s long-term interests, which includes planning for foreseeable major expenses.

Why reserve studies still matter in South Dakota

Even without a statutory requirement, reserve studies remain the best available tool for South Dakota associations that want to avoid financial shocks. A professional reserve study:

• Catalogues all major common components the association must maintain (roofs, siding, paving, mechanical systems, amenities).
• Estimates each component’s remaining useful life and replacement cost.
• Builds a multi-year funding plan that spreads contributions fairly over current and future owners.
• Demonstrates to owners, buyers, and lenders that the board is managing long-term obligations responsibly

Reserve studies also support more accurate disclosure. Even though South Dakota’s property disclosure framework for HOAs focuses primarily on the existence of the HOA, governing documents, and fees, sophisticated buyers and lenders will almost always look deeper into the association’s financial statements and reserve position. Well-documented reserves make those conversations easier.

Best-practice funding strategies for South Dakota associations

Without statutory numbers to follow, boards need internal targets and discipline. Common best practices in states like South Dakota include:

• Targeting a healthy “percent funded” level: Many reserve professionals consider an association “weak” below about 30-40% funded, “fair” in the middle range, and “strong” above roughly 70% funded. While South Dakota law does not reference percent funded, this concept helps boards gauge risk.
• Using budget percentages as an interim rule of thumb: Until a formal study is completed, some communities contribute 15-25% of their total annual assessment income to reserves as a placeholder. This mirrors guidance already used informally on your existing South Dakota page and provides a starting point, not a final answer.
• Keeping reserves segregated: Even though there is no statutory requirement to hold reserves in a separate account, doing so improves transparency and reduces the risk of accidental misuse of funds.
• Avoiding the temptation to “plug” budget gaps by cutting reserves: In a state without mandates, it is especially easy to justify underfunding reserves to keep dues low. Boards should explicitly recognise that this trades short-term popularity for long-term financial risk.

The most sustainable strategy is to set contributions based on a professional reserve study and then adjust gradually as conditions change.

How often should South Dakota HOAs and condos update a reserve study?

Because there is no statutory schedule in South Dakota, boards should align with national standards and lender expectations. Typical practice is:

• Full reserve study with site visit every 3-5 years.
• Interim financial updates in between full studies to reflect changed costs, inflation, and completed projects.
• An annual check-in during budget season to confirm that reserve contributions still align with the plan.

Communities with complex infrastructure or a history of underfunding may choose the more conservative three-year cycle for full updates.

Practical risks of underfunded reserves in a no-mandate state

The absence of legal mandates can lull boards into complacency. In reality, the core risks of underfunded reserves in South Dakota are the same as anywhere else:

• Frequent or large special assessments that anger owners and hurt affordability.
• Deferred maintenance that visibly degrades the community and depresses property values.
• Difficulties in resale when buyers or lenders see weak reserves in financial statements.
• Potential claims that board members breached their fiduciary duty by ignoring foreseeable major repairs.

Well-run South Dakota communities treat reserve planning as a governance issue, not a compliance checkbox. They behave as though the state had a mandate, even though it does not.

How PropFusion and professional reserve specialists support South Dakota boards

Using PropFusion, boards and managers can:

• Connect with vetted reserve study providers who understand the realities of small and mid-sized South Dakota communities.
• Store and update component inventories and funding plans in one place.
• Run different funding scenarios and see their impact on cash flow and percent funded over time.
• Generate clear, board-ready and owner-ready reports that explain why reserve contributions are set where they are.

Together with a solid reserve study and careful adherence to your governing documents, these tools allow South Dakota associations to match or exceed the planning standards of states that do have formal laws.