Section 718.112 (2)(f) of the Condominium Act provides that the annual budget prepared by the board each year shall include reserve accounts for capital expenditures and deferred maintenance. A condominium budget MUST include reserves for roof replacement, building painting, and pavement resurfacing, regardless of the amount of deferred maintenance expense or replacement cost for these items, and must also include reserves for any other item for which the deferred maintenance expense or replacement cost exceeds $10,000.
The formula to determine how much to put away in reserve is based upon the estimated remaining useful life and estimated replacement cost or deferred maintenance expense of each reserve item. The association may adjust replacement reserve assessments annually to take into account any changes in estimates or extension of the useful life of a reserve item caused by deferred maintenance.
Even though the board must create a budget with full reserves, the members of an association have the right, by a majority vote at a duly called meeting of the association, to provide no reserves or less reserves than required by the Condominium Act. If a meeting of the unit owners is called to determine whether to waive or reduce reserves and majority approval is not obtained or a quorum is not established at that meeting, the board's budget must go into effect with FULL reserves.
Prior to turnover of control of an association by a developer to unit owners, the developer has the statutory right to unilaterally waive the reserves or reduce the funding of reserves for the first 2 fiscal years of the association's operation, beginning with the fiscal year in which the initial declaration is recorded. After that time, reserves may only be waived or reduced with the consent of a majority of all nondeveloper voting interests voting in person or by limited proxy at a duly called meeting of the association.
Reserve funds and any interest accruing thereon MUST remain in their individual reserve account or accounts, and shall be used only for authorized reserve expenditures unless their use for other purposes is approved in advance by a majority vote at a duly called meeting of the association. This means that the funds in the roof reserve can be used only to maintain, repair or replace the roof and for no other purpose unless the membership consents to such different use.
Given the serious ramifications that can occur in communities where reserves have been waived for years, the Florida Legislature amended the Condominium Act several years ago to provide that the following prominent disclaimer language be put in bold on any proxy or ballot used by owners to waive or reduce reserves:
WAIVING OF RESERVES, IN WHOLE OR IN PART, OR ALLOWING ALTERNATIVE USES OF EXISTING RESERVES MAY RESULT IN UNIT OWNER LIABILITY FOR PAYMENT OF UNANTICIPATED SPECIAL ASSESSMENTS REGARDING THOSE ITEMS.
The idea behind reserves is quite simple: put away money for a rainy day a little at a time so it doesn't hurt as much when that rainy day finally arrives. However, there will always be folks who don't like to be forced to save because they might not be around to enjoy the benefits of those savings (the "I no longer buy green bananas" crowd) as well as those folks who don't like to put any more funds than absolutely necessary at the disposal of an elected board. There have been legislative proposals the last few years that would take away the members' rights to waive or reduce reserve funding; this means that all condominium budgets would automatically include reserve amounts regardless of majority membership opinion on the matter. How many of you would support such legislation and how many of you would see that as unnecessary governmental meddling in your private community affairs?