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Does My Association Include Fully Funded Reserves in Its Proposed Budget?

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With the budget season approaching, many condominium associations may wonder how to prepare a budget when it’s anticipated that members will vote to waive or partially fund reserves. The board must create a proposed annual budget that includes estimated revenues and expenses. In addition to annual operating expenses, Section 718.112(2)(f)(2)a, Florida Statutes, requires the proposed budget to reserve money for roof replacement, building painting, pavement resurfacing, and any other item that has a deferred maintenance expense or replacement cost that exceeds $10,000. Reserves are calculated based on a formula contained in the Florida Administrative Code, designed to accrue money over the useful life of the individual assets so that the association is not forced to impose special assessments to repair or replace the assets. Budgeting for reserves is complex because it requires estimating the remaining useful life of the building components, their future replacement cost, and accounting for the funds previously saved. The association should retain a reserve specialist to produce a reserve study periodically and work with its accountant to budget for reserves.

Reserving adequate funds in the budget so the association will have enough money to repair or replace building components at the end of their useful lives is referred to as fully funding reserves. The proposed budget must include fully-funded reserves. The budget cannot anticipate that reserves will be waived, or partially funded. After the proposed budget is prepared, the association must select a date and time for a meeting to consider the budget. After selecting a meeting date and time, a copy of the meeting notice and the proposed budget must be sent to all unit owners at least fourteen days in advance of the meeting at which the budget will be considered. The governing documents must be reviewed to determine if additional notice is required. At the meeting, a final budget will be adopted and the membership may vote to waive or partially fund the reserves. The Condominium Act requires a majority vote of the membership at the meeting at which a quorum is present to waive or partially fund the reserves. However, your governing document may contain a different threshold, such as the majority of all members. If a vote is not taken, a quorum is not present at the meeting, or a majority of the voting interest does not vote to waive or partially fund reserves, the fully-funded reserves included in the budget goes into effect.

Unlike condominiums, Florida homeowners’ associations are not required to include reserves in their budget unless the developer initially established the reserve accounts or if the membership of the association affirmatively elects to provide for reserves, referred to as “statutory reserves.” If your homeowners’ association implemented statutory reserves, then fully funded reserve accounts must be provided in the proposed budget. Similar to condominium associations, the membership of the homeowners’ association may vote to waive or partially fund the reserves. If the membership does not vote to waive or partially fund the reserves, then the fully-funded reserves contained in the proposed budget go into effect.

Condominium associations, and homeowners’ associations with statutory reserves must provide fully funded reserve accounts in their proposed budgets. The reserves may only be waived or partially funded by the vote of the membership.

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