Condo associations, no matter how big or small, will come up against some major expenses at various points in their operation. The key to being prepared to handle these hurdles with ease is by fully funding your reserve.
What is a reserve fund?
Reserves are monies set aside for the long-term repair and replacement of common elements in the association. Setting aside money in the reserve assures members of the association that when the roof needs to be replaced, enough money will be on hand to get the work done.
While many associations include fully funded reserves in their annual budgets, the association may have the right to waive this option if voted in favor of that option by a majority of the owners.
Examples of common elements in which money would be allocated in the reserve might include roof replacement, building painting, pavement resurfacing, or other items exceeding $10,000 in replacement or deferred maintenance costs.
Considerations to keep in mind when calculating reserves
With each annual budget, the board will also include a reserve schedule that spells out the replacement item, its total estimated life, how much life remains in that item, and the anticipated cost to replace, repair, or maintain the item.
While there are many ways to calculate your estimated reserve needs and it’s always best to consult an expert, it’s helpful to keep in mind factors like total anticipated replacement costs, the balance you already have in your reserve, and how many years you still have left before maintenance or replacement will be needed.
As a reminder, reserve monies can only be used for their intended purposes unless a majority unit owner vote takes place and approves an alternate use for the funds. If your association does not have enough money in its reserve to cover the costs, a special assessment may be levied.
If you have questions about calculating reserves and determining the best ways to factor in reserves into your annual budget, call us today at 305-254-4492.
We offer legal assistance in all matters of condominium association law, homeowners and community association law, real estate litigations and transactions, residential and commercial closings, and insurance law.
We pride ourselves of our level of commitment to our clients. We love what we do, and we do it with utmost care and professionalism.