It goes without saying that every association must adopt a budget each year reflecting the estimated income and expenditures of the association. The Florida Administrative Code requires the budget adopted by the Board of Directors to contain some basic features.
The budget must contain the beginning and ending dates. Adopting a budget for the “2015” calendar year does not comply with the technical requirement of the code. Saying the budget is applicable for the “year ending 12/31/2015” doesn’t cut it either.
The budget must show the total assessment on a monthly or quarterly basis for each unit type according to the allocation of assessment liability. For condominiums and cooperatives, the statutes require the budget adopted by the board to include fully funded reserves for capital expenditures and deferred maintenance, so that means the monthly or quarterly amount reflected on the budget, as adopted by the board, must contain the total payment. Reserve funding may only be waived or reduced by a membership vote.
Associations operating more than one condominium must prepare a separate budget for each of the condominiums, in addition to a budget reflecting expenses paid by all condominium owners, unless the members have voted to consolidate financial operations. Consolidating financial operations, however, is only available to associations where at least one of the condominiums was created before 1977. Section 718.111(6), Florida Statutes says:
… an association may operate two or more residential condominiums in which the initial declaration of condominium was recorded prior to January 1, 1977, and may continue to so operate such condominiums for purposes of financial matters, including budgets, assessments, accounting, recordkeeping and similar matters, if provision is made for such consolidated operation in the applicable declarations of such condominiums or in the bylaws.
Consolidating the financial operations can make handling your financial affairs much easier. It may be less costly as well, especially when considering accounting fees for the year-end financial statements. Is your community eligible to consolidate its financial operations? Speak to your community association attorney to find out.
Limited common elements may have to be identified in the budget. According to Section 718.113(1), Florida Statutes, the costs associated with maintenance and care of limited common elements may be specifically allocated to the owners having the use of those limited common elements. Sometimes the declaration simply requires the unit owner to attend to the maintenance and repair. In other cases the association is still responsible for effectuating the maintenance and repair and bills the owners separately. In the latter case, the Administrative Code requires the budget to include a separate schedule (or schedules) reflecting the expenses associated with those limited common elements. You may need separate reserve schedules as well.
Calculating reserve contributions depends on the method selected by the Board of Directors. In the past, associations were required to keep separate line-item reserve accounts for roofing, paving, painting and any other item of deferred maintenance or replacement cost expense that would exceed $10,000. 2003 amendments to the Florida Administrative Code allow an association to calculate the funds necessary based on a group of assets. This is referred to as “pooled” or “cash-flow” reserves.
Switching from the straight-line method of reserve funding to the cash-flow or pooled reserves requires membership approval. Many associations have both at the same time since they failed to transfer the straight-line funds into the pooled fund. This will typically result in a calculation that requires a larger contribution so it is worthwhile to work with counsel to ensure all the funds are properly in the pool.
As mentioned above, the budget adopted by the board must contain fully funded reserves. The funding can only be waived or reduced by a vote of the members. Does your association include the required disclaimer in the waiver vote? Section 718.112(2)(f), Florida Statutes requires very specific language on the proxy or the ballot.
I encourage you to review your budget and reserve funding or waiver procedures with your association attorney, as these issues remain within the enforcement jurisdiction of the Division of Florida Condominiums, Timeshares and Mobile Homes.