“Peak” or "Threshold" years, for a common interest community, are those years when there are very large expenses that occur in a very short period of time. Typically this is due to having several components which make up the bulk of their common area expenditures. For most communities these very large expenses occur infrequently perhaps only every 20-30. Common examples of these are roofing, deck replacement and asphalt overlays all of which are infrequent but extremely costly common area components.
The concern here is that many communities we work with have been cruising along in a poor to fair funding level for many years with no significant negative impacts. The community has seen many community members come and go, there have been several management companies over the years and the Board, which is making the financial decisions for the community, has seen its typical turnover. The question we most often hear from these communities is: Does “Percent Funded” really matter? That’s a great question because after decades of cruising right along with low HOA dues and few annual increases it's easy to become complacent. However I always like to remind Associations that the expenses in the reserve study are real and will happen, there will be a vendor sending out a bill and the money will have to come from somewhere; if not from the reserve account then a special assessment or a loan.
In the below chart this particular community has seen modest expenses for seventeen years until they reach one of their peak years. In this case they have very large expenses for decks & railings. This particular community had several Boards over the years which debated whether decks & railings were really a common area maintained by the Association, several of the Boards decided against funding for them, artificially keeping dues lows and in essence inadvertently penalizing the future members of the community who have to now pay for more than their fair share of the deterioration of these components.