The “grace period” for projects designed under the prior PA UCC has ended as of July 1, 2026. This means that all municipalities and municipal code officials across the Commonwealth, in addition to designers, contractors and builders who work with them, must ensure compliance with the new code.
Condominium Alert: Significant Changes to Project Requirements
By Rachel M. Sorokin, Esq.
Gawthrop Greenwood, PC
Fannie Mae and Freddie Mac have announced significant updates to project standards and property insurance requirements for one- to four-unit properties and condominium developments. These changes will directly impact condominium projects, specifically in how they approach reserve studies and funding levels.
Changes to Reserve Study & Baseline Funding Requirements
One of the most important updates announced on March 18, 2026 focuses on reserve study requirements and how associations demonstrate adequate financial reserves. In Pennsylvania, association boards have historically been advised to secure capital reserve studies on a periodic basis to aid in budget planning. However, there is no legal requirement that boards commission a reserve study nor a specification that the recommendations be incorporated into the association’s budget. Now, under the new FHA/Fannie Mae policy, failure to incorporate a reserve analyst’s recommendations into a budget is no longer sufficient.
In addition, lenders are no longer permitted to use the baseline funding method, which previously allowed reserve balances to approach but not fall below zero. This change is intended to ensure that projects are financially prepared for major repairs and long-term capital needs. Although these requirements are not mandatory, failure to comply will result in a classification as a non-warrantable community for loan applications.
Increase to the Minimum Reserve Allocation Requirement
Another change includes increasing the minimum reserve allocation requirement for capital expenditures and deferred maintenance. The required contribution is being raised from 10% to 15% of the annual budgeted income. This update applies to projects reviewed under the full review process and is designed to strengthen the overall financial stability of condominium developments. Lenders must comply with this requirement for loan applications dated on or after January 4, 2027, while all other requirements related to replacement reserves and budget adequacy remain unchanged.
Broader Concerns About Reserves & Deferred Maintenance
These changes reflect broader concerns about underfunded reserves and deferred maintenance in condominium projects. Projects with inadequate reserves often lack the resources needed to maintain property conditions or address unexpected expenses, which can result in special assessments, financial hardship for unit owners, and increased risk of default or foreclosure.
How to Comply
Given these updates, it is important for associations to take proactive steps to ensure compliance. This includes obtaining a current reserve study, confirming that budgets align with recommended funding levels, and preparing for potential assessment adjustments. Associations should also consider consulting with a community association attorney or other qualified professional to ensure they meet the updated requirements.
Rachel M. Sorokin is an associate attorney whose practice focuses primarily on community association law. She represents homeowners’ and condominium associations in matters involving governance, compliance and formation, as well as related zoning and land use issues. For more information, contact Rachel at rsorokin@gawthrop.com or 610-696-8225.
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