There are both practical and legal reasons for your Florida condo association to maintain a reserve fund for emergency and structural expenses. From a practical perspective, planning for the future just makes sense. When you have a nest egg set aside for future maintenance expenses and property upgrades, it takes the sting out of the project when the time comes to make (and pay for) a major repair. It also helps avoid having to levy a special assessment on owners (because who wants to do that?) and it can increase property values. 

If practical reasons aren’t enough, maintaining a reserve fund is also the law in Florida. Per Fla. Stat. § 718.112(2)(f), condo associations must include reserve accounts for capital expenditures and deferred maintenance, specifically expenditures with a replacement cost exceeding $10,000.

How Much Should You Keep in Reserves?

Now that you know why you need a reserve fund, the tricky part becomes how much to maintain in that budget. When the board of directors sits down to prepare the annual budget, they must account for the day-to-day operating expenses (i.e., the annual operating budget) and the reserve account. These two funds should remain separate. Reserve funds cannot be used willy-nilly. They may only be used on authorized reserve expenditures, such as a new roof or fixing the HVAC system. However, estimating the cost to repair or replace these items can feel a lot like guesswork, which makes it challenging to determine how much to save.

Enter the reserve study.

What is a Reserve Study and When Should You Do It?

A reserve study is an analysis conducted by a professional to evaluate the long-term expenses a condo association is likely to encounter. Based on a complete analysis, the reserve study expert creates a schedule of expected repairs, replacements, major maintenance, and all other eventualities that may impact your condo association’s bottom line. We recommend associations perform a reserve study every few years. At a minimum, structural integrity reserve studies must be conducted every 10 years per the recently passed Senate Bill 4-D.

The reason reserve studies are so important is that without a thorough, objective analysis of your condo association’s needs, the board cannot determine with any accuracy how much money the reserve fund needs. 

Reserve studies factor in the size of your community and common areas, the state of your equipment and infrastructure, estimate cost and timing of repairs, and much more. They then take all of this information and lay out a 10-, 20- or 30-year plan. With this plan, the BOD can accurately estimate how much you should be putting into your reserve fund regularly, as well as how much to charge in assessments to your community members.

Contact Our Legal Team with Questions 

A reserve fund is not just a financial safety net – it’s an essential part of ensuring the longevity, stability, and safety of your condo association. To ensure you are adequately budgeting for yours, we recommend partnering with a professional reserve study specialist and contacting our team at Dania Fernandez and Associates, P.A. Reach out to our team today to ask your questions and take a look at our website for dozens of other helpful resources and legal forms for Florida condo and homeowners associations.