It’s election season again and you know what that means, right? If you live in a condominium, then typically at your annual meeting, in addition to the election, the association’s opportunity to vote to waive or reduce reserves takes place, too. Here are a few helpful hints to keep in mind:
Condominium association budgets must include fully funded reserves in their annual budget for each item whose replacement costs are greater than $10,000.00. Each such item is required to have its own line item reserve in the budget, unless the association decides to “pool” their reserves. This means that there is one line item for all items within the “pooled” reserve. Reserves must only be used for their designated purpose unless the unit owners vote to use them for a different purpose. If the unit owners do not vote to waive or reduce the reserves, then, pursuant to state law, the fully funded reserves go into effect.
Reserves should be budgeted based on a straight line method. This means that if the cost to replace the roof is $100,000 and its life is 30 years, the association should include $3,333.33 per year for reserves (100,000 30). If repairs are made that affect the remaining useful life, then the association can take that into account, too. Effective July 1, 2010, the requirement to have a reserve study was deleted from Chapter 718, Florida Statutes, the Condominium Act.
To waive or reduce condominium reserves requires an affirmative vote of the majority of the unit owners at a members’ meeting where a quorum was present. To use condominium reserves for a different purpose other than for which they were accrued or to begin “pooling” reserves, a majority of all unit owners must vote in favor of this change. The requirement that a developer controlled board cannot raise the budget by greater than 115% over the previous year does not, amongst a few other things, include the tabulation of the reserves in the budget calculation that determines whether the increase is greater than 115% over the prior year.
Homeowners’ association reserves are a bit different. There is no requirement that forces an HOA to include reserves in the budget unless the developer initially includes them, or the majority of the entire membership votes in favor of accumulating reserves. Therefore, if your HOA’s budget includes a line item called “reserves” but neither the members voted to accumulate them, nor did the developer initially vote to establish them, then the HOA’s reserves are more akin to a voluntary savings account.
Regardless of whether you live in an HOA or a condominium, it pays to be circumspect as to how your association board presents the choice to waive or reduce the reserves. More often than not, the limited proxy/ ballot provides the choice to fully waive or to reduce by either a certain percentage or by leaving it up to the discretion of the board. Providing more than one choice means that your association is less likely to accomplish either result, and the unintended, but very real result, is that the required votes to pass either option is diluted. If the Board is going to provide the option to waive or reduce, then consider presenting only one option.
Keep in mind that, reserves are forced savings accounts to replace items that have a limited life so that the money is accrued by the time you need to replace the reserved item. While waiving or reducing reserves may seem like it’s saving you money, consider the fairness of the following scenario: Mr. Jones lives in a condominium where reserves are waived year after year. After 20 years of enjoying his home, Mr. Jones moves. Six months later a new roof is required. The result is that Mr. Jones enjoyed the roof for those 20 years and never had to contribute towards the savings for a new roof. Meanwhile, the person that bought his unit is stuck with the special assessment bill!