Tuesday, September 8, 2009

To reserve or not to reserve....that is the question

How many of you live in communities that maintain reserves for capital expenditures and deferred maintenance? How many of you wish you did?

Despite repeated attempts by the Florida Legislature over the last few years to mandate full funding of reserves each year, condominium and cooperative owners still have the right to vote to waive or only partially fund reserves for the roof, painting, paving and any other item for which the cost for deferred maintenance or replacement exceeds $10,000. There is argument in some quarters that the $10,000 threshold has not kept pace with the economic times and needs to be raised to factor in inflation. There is argument in other quarters that the right to waive or reduce funding for reserves should be taken away altogether and reserve funding should be mandatory...period.

The reasoning behind reserves is really quite simple. Those who put away for a rainy day tend to fare better than those who don't. This is still a hard sell for those who, in their own words, don't buy green bananas for fear they won't be around when they ripen (aka the "green banana" crowd). This is also a hard sell for those who fear that the more money lying around, the greater the temptation for someone to take it or use it without membership input.

The Condominium and Cooperative Acts both require boards to adopt budgets each year with full reserves for painting, paving, roof and any other item for which the deferred maintenance or replacement costs exceed $10,000. A majority of the members can then vote to waive or only partially fund those reserves. Up until a few years ago, reserves in homeowners' associations were entirely document driven. Several years ago, the Legislature passed changes to Section 720.303 which, among other things, allows a majority of the members in an HOA to vote to impose reserves in the community.

In the aftermath of several tumultuous storm seasons a few years back, those communities (whether they were HOA's, condominiums, or cooperatives) who had fully funded reserves were able to immediately use those reserves for the roof or to obtain a vote of the membership to use the reserves for other purposes such as clearing storm debris. With the passage of emergency powers for condominium boards, reserve funds will become even more useful in the event a state of emergency is ever declared.

While delayed gratification always requires a certain amount of discipline, the fact that some communities have squirreled away for a rainy day in the form of reserves might make those communities more appealing to potential purchasers in this tight market.

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