Q: I'm new to our condo's board of directors. We will begin to plan next year's budget in a few months and I'm supposed to work on the reserve portion. I want to be sure I'm prepared. Can we do anything to get ready for the process? Do we just guess about how much to reserve? What do I need to know?
A: The Condominium Act requires at a minimum that three categories of reserves be established for roof replacement that usually occurs once in 20 years, building painting that usually occurs between five and seven years and pavement resurfacing. Florida statutes also require a reserve account for any item for which deferred maintenance expense or replacement cost is greater than $10,000. These reserve accounts for deferred maintenance are common for swimming pools, seawalls and spas.
The required reserve categories are for expenditures that do not occur on a routine basis. These accounts provide funds for major capital repairs or replacements that are needed throughout the life of a community association. Reserves are kept to provide for special repairs and deferred maintenance without the need for a special assessment.
One thing to consider is a reserve study. This is a report of all the common elements in a community including entry gates, pool equipment, clubhouse; roofs, tennis courts, private streets, lighting and landscaping.
Your board of directors could consider hiring a reserve study preparer who would inspect all of the common elements to determine the age of each component, remaining life, replacement cost and the current condition. The specialist would prepare a Reserve Study for the board to use when they prepare the reserve budget.
This study tells the board of directors when a certain element will probably need to be replaced and what the estimated replacement cost will be. The study can guide the board about how much money will need to be set aside each year so that when it comes time to replace the item, the money is available. Reserving funds minimizes the risk of having a special assessment.
The reserve study is only a projection of replacement dates. If the study states that something needs to be replaced at a certain time and the item does not need replacing, no action should be taken. The reserve study would need to be updated to reflect the updated anticipated replacement date if this occurs.
If the board is unclear about any aspect of their obligation to reserve funds for major maintenance and repairs consider consulting an attorney who is familiar with community association statutes.
Attorney Sylvia Heldreth is a certified specialist in real estate law. Her office is located at 1215 Miramar St., in Cape Coral.
This article is not intended as specific legal advice to anyone and is based upon facts that change from time to time. Individuals should seek legal counsel before acting upon any matter involving the law.