HAR §16-119.6-11. §16-119

6-10 Reserve funds nontransferable. Replacement reserve and contingency reserve funds that an association collects from unit owners become the property of the association. A unit owner who sells a unit shall have no right to reimbursement of the replacement reserve and contingency reserve funds from either the purchaser of a unit or the association. The replacement reserve and contingency reserve funds shall not be conveyed or transferred separately from the unit to which they relate. They shall be deemed conveyed or transferred with the unit, even though they are not specifically mentioned in any conveyance, assignment, or transfer of the unit. [Eff MAR 26 2026 (Auth: HRS §514B-61) (Imp: HRS §§514B-101 (b), 514B-148) §16-119.6-11 Exempt association property; disclosure; transition to association property. (a) The association's reserve study shall disclose all assets for which funds are not included in the replacement reserve study because they are exempt association property. The reserve study shall also contain a brief explanation of why those assets are exempt association property. (b) An asset which is deemed to be exempt association property because its estimated remaining life is more than thirty years shall become association property on the date its estimated remaining life becomes less than thirty years, referred to in this subsection as the transition date. The asset shall be included in the association's reserve study for the first budget year after the transition date. In calculating a full replacement reserve for the asset after the transition date, the association may disregard the asset's actual age. The association may instead assume that at the beginning of the first budget year after the transition date, the asset's estimated age is zero and its estimated useful life is the same as its estimated remaining life. 119.6-17 3 6 2 6 §16-119.6-11 Example: An existing asset has an estimated useful life of fifty years, becomes twenty years old on January 1, 2018, has an estimated remaining life of thirty years, and an estimated replacement cost of $100,000. Under the standard method of calculation, a full replacement reserve on December 31, 2018, for that asset would be $42,000 ($100,000 x 21/50). If an association had not already established a replacement reserve for that asset, the full replacement reserve contribution by December 31, 2018, would be $42,000 (or fifty per cent of that amount $21,000 for the minimum replacement reserve). If the association adopts the method of calculation permitted by subsection (b), the full replacement reserve contribution required by December 31, 2018, for the same asset would be only $3,333 ($100,000 x 1/30), or fifty per cent of that amount - $1,667 (rounded to nearest whole number) - for the minimum replacement reserve, although subsequent annual contributions will be higher than in the first example. In effect, the asset is deemed to be only one-year old, .n~t twenty-one years old on December 31, 2018. [Eff MAK 2 ti 2026 ] (Auth: HRS §§514B-61, 514B-148) (Imp: HRS §514B-148) §16-119.6-12 Borrowing and special assessments to fund replacement reserves. Provided an association assesses and collects sufficient funds to fund its statutory replacement reserves, complies with the law, chapters 16-119.1 through 16-119.8, and commission requirements, the board may in order to pay the cost to maintain, repair, or replace assets of the association: (1) Transfer funds between the separate, designated funds required by section 16- 119.6-6, subject to the requirements of that section; (2) Borrow funds, subject to the requirements of section 514B-105(e), HRS; and 119.6-18 3 6 2 6 §16-119.6-12 (3) Specially assess the unit owners. This section shall apply if the board underestimates the reserve requirements for an asset or if the cost to maintain, repair, or replace an asset will reduce the association's replacement reserve funds to less than fifty per cent of a full replacement reserve or to less than one hundred per cent of the full replacement reserves when using a cash flow plan during any budget year. Example: An association's full replacement reserve requirement is $500,000, but the association has only $250,000 of that amount in cash, as the law permits. The association's replacement reserve account designates $200,000 of the $250,000 to replace its roof in 2020 or to less than one hundred per cent of the replacement reserves when using a cash flow plan. In 2020, the association replaces its roof on schedule. If the association spends all the $200,000 designated in its replacement reserve account for the roof, large assessments will be necessary to re- establish fifty per cent of a full replacement reserve in cash by the end of 2020. Replacing the roof will reduce the association's replacement reserve requirements during 2020 by $200,000, from $500,000 to $300,000 (to which must be added the funds required during 2020 for the other association assets). Nevertheless, spending the $200,000 will also reduce the association's replacement reserve funds by $200,000, from $250,000 to $50,000 (plus whatever the association collects during 2020). Thus, by the end of 2020, the association will have only $50,000 in reserves, but needs at least $150,000 (i.e., fifty per cent of its full 119.6-19 3626