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Condo Association Reserve Funds: Use and Regulations

Posted on Sun, Mar 07, 2010 @ 07:30 AM
  
  
  
Regarding Reserve Funds: Can the Condo Association Boardreserve funds utilize reserve funds to make needed improvements? Can one reserve fund by reallocated to another to accomplish the improvement? Does the majority of the condo association need to vote to re-allocate funds or can the Board re-allocate the funds as needed without a vote if they make the condo association aware at a monthly meeting? I'm a Florida Unit owner and am not fully aware of the FL 718 statutes or the Florida Administrative Codes regarding use of reserve funds

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COMMENTS

The key word in your question is "improvements".  
 
The specific answer to spending from Reserves that are definitely for 'improvements' is NO. However, the definitions of some replacements can sometimes be interpreted as either maintenance work or improvements, such as replacements of something that was original but replacements are using modern materials.  
 
To add something which was not originally there is clearly neither replacement nor maintenance.That would be improvement or addition to the common property. 
 
Note that this may also apply to common property landscaping alterations that can be expensive nowadays,and may rightly become a matter for a vote; as when the cost is considered 'material' i.e.typically "more than $10,000" but the item has not been included in any non - Statutory 'Other reserves' budget.  
 
Statutory Reserves are for specified major items like roof replacing / maintenance, repainting buildings and renewing pavement . All of these are recognized in Florida Condo Law (718) as being Statutory Reserves.  
 
They each should have a specific financial allocation in the reserves account and their future mainetenance costs should be estimated by a periodic(5years?)Reserves Fund Study.I believe their expenditures for a given year must form part of the reserves spending plan of the passed annual budget being used for the yearly assessment of members' fees.  
 
In any multi - phase condo association which is administered by a 'master' associaton, each of the individual phase associations should have and should monitor its own budget reserves account...but while there CAN be co-mingling of the Reserves bank accounts, comingling there must be NO comingling of the expenditures.  
 
A degreee of 'common sense is needed, too, as much in this vexatious area of condo - living as any other if the association is not to become ungovernable due to interminable voting. So,it can be a wise policy to very carefully plan the reserves spending for each year, both Stautory items and 'other' reserve items youe own association reserves for future, non - yearly recurring expenses, and to spend the reserve funds ONLY on those items unless there is an emergency to respond to.  
 
It is important you point out the need for a vote on the big issues(read your documents to know the voting rights and rules for this) and perhaps be willing to be just a little 'flexible' on the marginal calls, with relatively low expenditures involved.  
 
I am not a lawyer. 
 

posted @ Sunday, March 07, 2010 10:12 AM by John C.


This very same thing came up at one of our meeting 4 weeks ago. Our President was on the phone (due to working out of the area), anywho 2 board members (for the record)live out of the area and are not here in Fla 365 days a year. 1 in Michigan and the other in Canada....hmmmm you say. They decided in a public meeting without telling everyone the facts, decided to remove 13,000 from our interest reserves and finish ourdriveway. These interest funds have been set aside for EMERGENCYS and yes we do need a new driveway, but it can wait 2-3 more years. These 2 ppl that I speak of have no problem with spending other ppls money but wont budge monies from their own wallets.  
 
 
 
Thank goodness we have a President that is on top of things and quickly took actions. The meeting that I speak of was regarded NULL AND VOID (later at a meeting where he could personally be there) and all decisions these 2 ninnies made were stopped.  
 
Thanks to JS for his knowledge and caring for our Association.  
 
 
 
 
 

posted @ Sunday, March 07, 2010 8:50 PM by david


I live in condo's in cols, ohio. I was wanting to find out if its a law for condo associations to keep a reserve or a percent in the bank incase of things that come up?

posted @ Thursday, April 29, 2010 11:06 AM by RO


Reserves are for replacements, not improvements. By National Reserve Study Standards, Reserves are to be used for expenses that are common area maintenance responsibilities, life limited, with predictable remaining useful lives, that are above a minimum threshold cost of significance.  
Associations that do otherwise get themselves into trouble, spending Reserves for projects for which they were not intended, leaving the Reserves depleted for their intended purpose/projects. 
Re: Ohio, my understanding is no reqmt there (or any other state) to keep a min balance in the bank. Reserves are collected for one purpose... to be spent (on the right projects).

posted @ Tuesday, May 25, 2010 8:09 AM by Robert M. Nordlund, P.E., R.S.


With respect to the State of Florida, the funds set aside in the replacement fund must be used only for the purposes intended. If the replacement fund is maintained on a "component basis", then funds for say roof cannot be used for paving, etc. without a majority vote of the members. The board may not make this decision. 
 
 
 
 
 
If the expenditure is for a component that is not included in the reserves, then all bets are off. Even if a "pooling" method is used, the item must still be a component within the pool. 
 
 
 
For the State of Florida, there needs to be discussion of the proper method of computing the funding using the pooling method. Often, the folks conducting the study have a different point of view from what is required under the Statute.

posted @ Thursday, June 03, 2010 11:39 AM by Stephen Needleman


Regarding Reserve Fund for condos in the state of Florida, what are the legal consequences of not having a reserve fund? At every annual meeting for the past 10 years I have brought up the fact that our condo does not have and has never had a reserve fund. It is a small 15 unit condo which has had most of the units owned by the same family members for over 30 years. The standard reply is "never in the history of this condo have we had a reserve fund and we are not obligated to have one!" Now that most of these mafioso are dying off and there are new owners, we are very concerned with the legal consequences. Years ago they also converted the recreation room to an apartment and kept the money, along with selling boat docks to the building next door. We have found the satisfaction of mortgage for the docks, but cannot seem to find the money. They have destroyed all of the documents and records and cancelled checks. What do we do from here?

posted @ Wednesday, October 06, 2010 8:13 PM by Miss


Can the condo association president use the reserve funds to repair his own roof ? We have a problem with a leak in our master closet every time it rains heavy. Supposedly they have sent someone to repair the roof, but the repairs were either not done right or never done, and now we have a new management company. We spoke to the new management company and they are telling us they have no money to make repairs right now, because there are many unit owners not paying their association dues. They are also telling us that we have less than $100.00 in the reserve funds, where 2 years ago there were hundreds maybe thousands of dollars in the reserve funds. We think that the president along with his friend had their roofs repaired or replaced, and maybe that is where the reserve money went, how can we find out for sure ? What can we do to have our roof repaired, please help.

posted @ Wednesday, November 03, 2010 1:15 PM by Patty


what happend if the useful life per windows and sliding doors is 30 years and after 23 years the board decided to replace the windows because they can not be openned. On the Declaration was not considered windows and sliding door as items on the Reserve Studiy but when the board wanted to change those items they changed the bylawas and after trying so hard finally they got approbal to include a section in the bylaws by which now the association is responsible for w and sliding doors and when said that those expenses should be considered as common expenses but since they know they do not have enough money now they are ready to impose an special assessment on all the owners who donot have sliding door and they windows are in perfect condition they are more or less 50 of 130 units. what can we do besides change the board in January

posted @ Friday, November 12, 2010 10:47 AM by Maartha Gonzales


How did they go about "changing the Bylaws? Did they properly conduct a vote of all the the membership(owners) as probabaly required to by your Documents?  
 
If they did not, get a lawyer and make the board members themselves pay for the costs already incurred of replacing the sliding windows and doors.I believe the board members themselves will also have to pay for the cost of your lawyer.  
 

posted @ Friday, November 12, 2010 11:20 AM by John C


Maartha, it depends on the state where you live. In FL the association is now responsible for the windows and doors. Check your state's condominium laws online.

posted @ Friday, November 12, 2010 11:54 AM by PaulAB


Can Reserve funds be used for operating expenses? If not, what is the reference that prevents this/

posted @ Thursday, December 09, 2010 8:44 PM by Curtis


No.  
 
There should be a schedule for the statutory reserves items for which future replacements are likely to become necessary.That is what your reserves funds are for.  
 
Each year your Association budget should show the amount that is proposed to be spent from the reserves fund ( directors in Fl. must propse only full funding)and a schedule of the specific items on which the spending budget is calculated should be given to the unit owners along with the budget papers. TH emanagement should comply with that specific spending only, unless...there is an emergency. 
 
Operating funds are for the regular mainntenance items and regular costs.  
 
Remember, the income going into the reserves fund for the new budget is only known after the unit owners (membership) have voted for either full or partial funding of the reserves fund.

posted @ Monday, December 13, 2010 11:48 AM by John C.


At a recent board meeting, I made the following statement "It was my understanding the use of reserves is to repair and replace things we already have; not toput money in for future puchases. Don't we first have to pay for an item out of operations and then put it in reserves for future repair and replacement?" 
 
The association manager responded "No, that's not correct. How would you get things into a reserve program that you didn't have before? How would you fund that?" 
 
Who is right here? Where can I get MORE information on Reserves?

posted @ Friday, January 07, 2011 9:05 AM by June Longnecker


June, the Reserve Fund can only be used for line items in the Reserve Fund. "NEW" items must be paid for by special assessment usually... or by a majority vote of the owners. 
 
John C., "FULL FUNDING" is often misunderstood in Florida and is different from POOL FUNDING. A properly established Pooled Funding plan will cover ALL Reserve Expenses and reduce collecting too much money from the members. 
 
When my firm prepares Reserve Studies we show both the "Full" and "Pool" plans and compare them to the current method being used by the Association. "Full" funding often requires 20% to 50% more funds to be collected than "Pooled" funding. 
 
Feel free to email me and I will be glad to answer any other questions. Also, if you are in SW Florida I would be glad to meet with your board at no cost to discuss your Reserves. 
 
info@consultengineering.com

posted @ Sunday, January 09, 2011 10:06 PM by Joshua Porter


Our HPR does not allow renters to have dogs.An owners son,who does not pay rent but lives in her unit now has one.Is the son a renter or a guest?

posted @ Monday, January 10, 2011 6:11 PM by Patricia Goss


Our condo in Sarasota is projected to run into a negative cash flow for operating expenses later this year. Can we borrow funds from our reserve accounts to fund operating expenses short term until we can reduce expenses and / or increase dues to build back our cash position? If so, what vote if any is needed? If not, what is the specific Florida reg that prohibits this? We currently have about $87k in the reserve accounts and will probably have a cash flow shortgall of about $35k later this year?

posted @ Monday, February 28, 2011 11:19 AM by Bill Sjoblom


Bill, 
 
The short answer is that the association can vote to use Reserve funds for "non-Reserve" purposes if you have a majority vote. Chapter 718 of the 2010 FL statutes has more information, and it can be found for free online.  
 
Generally speaking, if your association MUST use Reserves to fund the Operating shortfall, you should also commit to a plan for paying that amount back into Reserves as soon as possible. If you haven't had one done recently, a Reserve Study would be a good way to determine how strong your Reserve accounts are, and what kind of consequences there might be for drawing money out of them. I'd be happy to help with specific information if you have any other questions.  
 
Good luck! 
 
Will Simons, RS

posted @ Monday, February 28, 2011 3:03 PM by Will Simons, RS


Our Board just voted to use $650,000 of reserves plus a $250,000 assessment to "remodel" the hallways in our condo. The only thing wrong with the hallways is that the carpet is rather ugly. This was done with reserves to avoid allowing a vote; $250,000 is the maximum amount allowed for an assessment (about $1000 pp).  
 
The building is only 6 years old. 
 
I'm in Florida; my understanding is that use of reserves to replace something that isn't in need of repair for aesthetic reasons is inappropriate.

posted @ Saturday, June 04, 2011 6:45 PM by Danial


Danial,  
 
Interior renovations to hallways (typically including flooring, wall coverings, light fixtures, artwork, etc.) are generally considered to be eligible Reserve expenses. Replacing an asset for aesthetic considerations is a justifiable reason for replacement, as outdated or unattractive common areas can negatively affect the value of your association property.  
 
However, I would advise your association to view this project in light of other possible expenses. That's a large sum of money that might be better spent on projects like balcony sealing, asphalt paving, etc. Even a newer property needs to be diligent about preventive maintenance, so if I were you, I would make sure you're not doing the hallway work at the expense of more important projects. Interior renovations and other projects that are purely aesthetic should take a backseat to projects that involve caring for the building envelope, mechanical systems, etc., as neglecting these components can lead to continuing problems if not addressed properly. If you don't have a current Reserve Study, this would be a good first step in deciding how best to allocate and spend your Reserve funds. Good luck! 

posted @ Sunday, June 05, 2011 10:38 AM by Will Simons, RS


Wow, that answer seems so contrary to the law I have to question your credentials. What case law can you cite where reserves were drained for a makeover was considered an acceptable use of reserve funds in the State of Florida?

posted @ Monday, June 06, 2011 8:53 AM by Danial


This is a simple application of National Reserve Study Standards. These standards dictate assets are appropriate to fund through Reserves that are common area maintenance responsibilities, with a limited Useful Life, a predictable Remaining Useful Life, with a significant Replacement Cost. Hallway and lobby renovations clearly pass this test. 
 
"Failure" happens many ways. One way is physical deterioration (roof leaking, fence falling down, etc.). Another is aesthetic failure (lobby style or rec rm style going out of date). Another is technological obsolescence (an entry system that needs to be upgraded, an office computer/printer that needs to be upgraded, etc.).  
 
I clearly do not know the details of this exact situation (how deteriorated was the carpet/hallway, how ugly was the carpet, what were the board's reasons for replacement, was hallway renovation in the Reserve Study and scheduled to be accomplished), but hallway renovation itself is a standard Reserve component.

posted @ Monday, June 06, 2011 9:19 AM by Robert M. Nordlund, P.E., R.S.


There is no deterioration. It's a makeover. They don't like what the developer gave us. 
 
While I concur that using reserves to replace carpets that need replacement is part of the purpose of a reserve, I don't see any case law that allows a board to use reserves as a slush fund to remodel the building whenever they see fit, even when no repairs or maintenance is warranted.

posted @ Monday, June 06, 2011 9:55 AM by Danial


Danial,  
 
I'm not an attorney, so I'll refrain from citing any case law. I'm just giving you the perspective of a Reserve Study professional. Aesthetic replacements are certainly more subjective than other types of Reserve projects, and the association needs to determine whether or not the hallways have collectively reached the end of their useful life, which, as Robert pointed out above, does not always mean a structural or functional failure. I would tend to agree with you that making a purely aesthetic change that could put your Reserve account(s) in jeopardy is probably a bad idea. You should consult your Reserve Study to see if and when the hallways were scheduled for updating, and go from there.  
 
You may want to review Florida Statute 718.112 for more information on the proper use of Reserve funds. Reserves are definitely not a "slush fund," and should not be treated as such.  
 
Hope that helps.  

posted @ Monday, June 06, 2011 11:30 AM by Will Simons, RS


Obviously I've read the statutes. i don't need a reserve study professional. I need a lawyer.

posted @ Monday, June 06, 2011 3:04 PM by Danial


Our association has a problem managing the funds set aside in the operating account to have sufficient funds when the oremium is due. part of the problem is that the annual premium is due at mid year so the funds are allocated in two budget years. The Boeard has borrowed the needed funds to make up the short fall , and know they want to set up a reserve account and take any short fall out of other reserve accounts in stead of borrowing from a bank. Can the board do this. I was led to believe that any expense that is an operating expense has to be used for operating expenses and reserve funds can not be used to make up any differences...Thank you Joseph F Scott

posted @ Friday, November 04, 2011 1:09 PM by Joseph F Scott


What is the Florida Statue that says it is mandatory to have a reserve in the budget unless all condo owners in the building voted "no"for a reserve.question#1. 
 
Question #2 is it "all" must vote or is it the majority present and voting.

posted @ Friday, December 23, 2011 5:39 PM by Henry W. Harbinson Sr.


Henry,  
 
 
 
#1: The statute you're looking for is FS 718.112 "Bylaws," specifically subsection (2)(e) and (2)(f).  
 
 
 
#2: I'm not a lawyer, so don't take this as an official interpretation, but the statute refers to "a majority vote at a duly called meeting of the association."  
 
 
 
Hope that helps...

posted @ Tuesday, December 27, 2011 8:50 AM by Will Simons, RS


Three condo unit owners including me are negotiating with our Condo Board as to their responsibility to in repairing the damage down to our units as a result of the repairs necessary to the plumbing in the walls behide our units. AFter meetinf yesterday w no resolution and what appers to be stalling-I see there isa Board meeting tomorrow eve . One agenda item is- the Elimination from the reserve fund for plumbing. Can they do this? and then, were will this put me in terms of getting the repairs made and reimbursement for monies I've already spent? Thanks in advance, Dfc

posted @ Thursday, February 02, 2012 11:39 AM by Diana Frances


At our recent condo board meeting in New Jersey, the board voted to spend 25% of it's reserve fund to put in new landscaping. This was at the annual board meeting, attended by just enough people and proxy to make it official. The notice of the annual board meeting made no mention of this expenditure. It seems extremely irresponsible of the board to spend 25% of it reserves on vegetation that will probably be gone in a few years. Do you agree?

posted @ Sunday, February 12, 2012 12:27 AM by Lawrence Teitelbaum


Our condo association recently found it necessary to replace the water shut off valves to each unit. Several were leaking and all were old and were running up the mutual water bill. We have $46k in reserve funds but the funds are somewhat specifically named. None say plumbing or electrical. Can several of these funds be combined into a "general repair" to take care of this type of expense? II understand that by statute we should keep roof, painting and pavement but can we combine the others?

posted @ Tuesday, April 03, 2012 9:15 AM by Steve Cato


in fl is it ok to take interest earned from reserve monies and apply them to a specific reserve (building painting) fund to fund an ongoing major project? Does interest income generated by reserves have to be allocated in any specific way?

posted @ Tuesday, May 21, 2013 9:57 AM by david


THIS QUESTION IS ABOUT RESERVES IN FLORIDA HOW MUCH MONEY OR WHAT%CAN WE PUT AWAY EACH YEAR OUR BUGET IS $120,000 THIS YEAR .ALSO IS THERE A LIMIT ON HOW MUCH YOU CAN HAVE IN RESERVES <PLEASE HELP>

posted @ Wednesday, January 22, 2014 11:14 AM by Tony


One of the results of a Reserve Study is a calculation of the funds necessary to offset ongoing deterioration and properly prepare the association for future expenses. 
 
Typically an appropriate amount is between 15-40% of an association's total budget.  
 
An association is a "not for profit", so funds should be collected to the appropriate amount, not in excess of what is needed. That "Fully Funded Balance" number appears in a Reserve Study, and changes each year with the changing condition & costs of your Reserve components.

posted @ Wednesday, January 22, 2014 11:32 AM by Robert Nordlund, PE, RS


if an association does not have reserves can they vote to have partial reserves? or is it full reserves only in florida

posted @ Saturday, February 15, 2014 2:11 PM by mike smith


Our board is trying to use reserve funds for a purpose that it is not intended for, they are holding a vote, but did not use the statement in 718.112 (2) (f) 4. Where you have to explain about doing this in bold capital letters. We asked about this, but the lawyer they consulted said that you don't need to put this in if you plan on paying the funds back in the next budget cycle, but 718.112 does not say anything about this. Is the lawyer correct or not? 

posted @ Monday, February 17, 2014 8:02 AM by Mark


On an HOA financial statement, from where is  
the interest category derived? 

posted @ Saturday, October 11, 2014 12:56 AM by Marilyn Slagle


Can a condo association Board of Directors move monies from several reserves, deplete one reserve and fully fund some others without a vote from the membership? 
I have searched and found no answer on this. Your help would be most appreciated.

posted @ Monday, December 15, 2014 8:58 PM by Joe Allen


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