RICA Legislation
Raymond Harrison, Esq., wrote the first mandatory reserve study legislation for the Rhode Island Condominium Association Inc. (“RICA”), which was introduced in the 2025 General Assembly session but it did not become law. Ray has improved the legislation to include more provisions to create and maintain Association financial strength and stability. Representative Deborah Fellela, District 43 Johnston, will sponsor the bill for RICA in the 2026 General Assembly session. Passage of the bill would enhance the quality of life of condo occupants and enhance the investments of unit owners moving forward.
What is a Reserve Study?
This bill would require associations to obtain and comply with reserve studies reviewed and recommended by an architect or engineer. A reserve study identifies specific common element components that will need to be repaired or replaced in the future. A reserve study also estimates the future necessary expenses for repair and replacement which are broken down to a monthly dollar amount per unit in an association budget. With this approach, the money should be in a reserve account when the time comes, for example, to replace roofs, siding, roadway and parking area asphalt surfaces. Associations with no reserve study and underfunded reserve accounts cause big problems for unit owners who would benefit from the enactment of this legislation.
Developer-Controlled Association Budgets
This bill would also require developers to obtain reserve studies and to establish and fund reserve accounts while developers control associations. Most developers intentionally create underfunded budgets with unreasonably low condo fees to help them sell units. Because of this self-serving developer approach, unit-owner-controlled associations start off in the hole financially and struggle paying association bills for decades. This bill would create significant consumer protection benefits for buyers and condo unit owners.
Beginning in a Financial Hole
Unit owners usually take control of their Associations with three strikes against them: unreasonably low condo fees, no reserve study and little or no money in a separate reserve account. Ray experienced this financial predicament as the first president of his unit-owner-controlled Tamarac Condo Association in Smithfield. Because the developer of the condo left the Association with no funds to purchase a reserve study, Ray created one for the Association. At annual budget meetings, he persuaded unit owners to increase condo fees that included money going to a separate reserve account as required by the reserve study. This approach pulled Ray’s Association out of its financial hole beginning as soon as the developer relinquished control of the Association. Unfortunately, many Associations struggle and remain in a financial hole for decades. This bill would help those executive board members and unit owners who have struggled and just can’t seem to get their Association out of a financial hole.
Unreasonable Budget Caps
As if three strikes wasn’t enough, the developer of Ray’s condominium had created unreasonable budget caps in the condominium documents. Here’s an example of a budget cap. To increase the annual budget for the next year by more than 10% over the annual budget of the previous year requires the approval of more than 67% of the unit owners at a meeting of the Association. Some developers create budget caps to help them sell units. They like the strategy because it doesn’t cost them any money while creating impressions in the minds of potential buyers that they will save money by paying lower condo fees. Budget caps are unreasonable because there are no caps on the costs of goods and services that Associations must purchase, and it is difficult to get a super majority of unit owners to vote to increase their condo fees. As soon as Ray became president of his Association, he drafted an amendment ballot to repeal the unreasonable budget cap created by the developer, collecting ballot signatures at an Association meeting. He also went door-to-door in his 84 unit condominium having discussions with unit owners until enough of them signed the ballot to repeal the unreasonable budget cap. This bill would void budget caps in condominium documents. Making budget caps illegal would eliminate Association attorney fee expenses necessary to repeal them, save a lot of time necessary for the amendment process, and eliminate the risk of failure to obtain unit owner approval.
Damage Done by Inadequate Reserves
Chronic Association underfunding over decades without adequate reserve funds causes major financial problems for Associations. Normal wear and tear and weathering of condo building exteriors result in large expenses for new roofs, new siding, new balconies, new roads and parking areas. Buildings that are not reasonably maintained suffer from rainwater infiltration that damages units and common elements. Associations make insurance claims for damage caused by poor maintenance that result in much higher premiums and much higher deductibles for Association property insurance. Building deterioration diminishes the quality of life for condo residents and reduces condo market values for unit owners. This bill would require responsible reserve funding from the beginning and before developers relinquish control of Associations to the unit owners.
Common Sense Budget Approach
A reserve study for an Association is a calculation that estimates how much money from monthly condo fees should be deposited into a separate Association reserve account to pay for all of the estimated future expenses to maintain, repair, and replace common elements. The concept of having a reserve study and a reserve account is nothing more than using common sense to produce responsible Association long-term budget management. Putting the right amount of money aside every month in a reserve account means there would be no big assessments or big Association loans for unit owners to pay someday. Passage of this bill would be the first major reform of the Rhode Island Condominium Law to improve the financial well-being of our Associations.
