Your condo association has this stash of money set aside called the reserves. You and many other members think that money should go toward a new paint color in the fitness center. That old pea green just isn’t doing it for you. You should be able to use those reserve funds for that, right?
Well, it depends.
Florida has strict statutes set in place that dictate what reserve funds can be used for. In general, this is a good thing. Reserve funds aren’t meant for small projects or non-essential beautification. They’re set aside for the big expensive stuff that comes down the line every several years or several decades – like a new roof, fixing the HVAC system or major repairs on the pool. The statute language calls these “capital expenditures and deferred maintenance.”
In fact, borrowing from the reserves for any unauthorized purpose is generally prohibited. To use reserves for reasons outside the authorized purpose requires a special process.
Let’s get into the specifics of the Florida laws on what condo association reserve funds can be used for.
Authorized reserve expenditures
To find out what “authorized reserve expenditures” are we (where else?) to the Florida Statutes. In particular, Fla. Stat. § 718.112(2)(f) tells us everything we need to know.
The statute states very specifically what the authorized expenditures can be: “These accounts must include, but are not limited to, roof replacement, building painting, and pavement resurfacing, regardless of the amount of deferred maintenance expense or replacement cost, and any other item that has a deferred maintenance expense or replacement cost that exceeds $10,000.”
When it comes to the use of reserve funds the Board has a fiduciary duty to ensure that reserves are used properly and in the best interest of the association. Therefore, a large amount of the responsibility in determining legitimate use of the reserve funds is placed on the BOD’s shoulders.
What about unauthorized expenditures?
Any use outside of the scope of authorized expenditures requires approval in advance by a majority vote. These circumstances come up on an individual basis but when they do it’s a very good idea to consult with a community law attorney to determine if the use of reserve funds is in accordance with state law.
In addition to a majority vote, the statutes even specify that the voting documents need to have special language giving owners fair warning of the risks inherent in borrowing money from the reserves for unauthorized purposes.
Reserve funds are a crucial aspect of a condo association’s budget. Though reserve funds may be used for purposes outside of the authorized expenditures, it’s a big decision that should be well-researched and thought out.
If your condo association wants to use reserves for other purposes, talk with us first and we can help you decide if this is in the best interest of your community.
The bottom line is, don’t forget about reserves. Reserve funding should be part of the budgeting process. Though the law allows flexibility on how, whether, and how much to fund reserve accounts, associations should not leave these decisions to the last minute because reports, calculations, potential owner votes, and time-sensitive coordination of these will ultimately be needed in order to fund them properly.