Managing a homeowners or condominium association requires a lot of work and responsibility. Not only do you have to ensure the association’s financial stability, but you also have to effectively plan for the future – and the unexpected. That’s why association reserves are so important.

Association reserves are funds set aside for the future maintenance, repair, and replacement of common elements and assets within the community. Effectively managing these reserves is crucial for your association’s long-term financial health and stability. In fact, the State of Florida just passed a law requiring all condominium associations three stories and higher, that their respective “reserves” be “fully funded” starting January 1, 2025. This includes having a Structural Integrity Reserve Study “SIRS” completed by December 31, 2024. A “Fully Funded” budget means that there must be enough money added to the reserve account for each notated component (Roof, Concrete, Painting, etc.) every year so that there will be enough money to replace the component or perform the deferred maintenance when dictated by the reserve schedule.

Additionally, here are some reasons reserve management is so important and some practical tips to guide your association.

Establish a safety net

Association reserves act as a safety net for unexpected expenses and major repairs. Over time, common elements such as roofs, roads, and recreational facilities will require maintenance or replacements. Without sufficient reserves, the association may be forced to levy special assessments or borrow funds, placing a financial burden on the homeowners. By maintaining healthy reserves, the association can cover these expenses without straining the community financially.

Conduct reserve studies

To ensure your association has adequate reserves in place, you should conduct regular reserve studies, which assesses the association’s assets, their estimated lifespan, and the anticipated costs of repair or replacement. This study helps determine the necessary funding levels for the reserves and helps the association create a budget. By conducting regular reserve studies, the association can stay ahead of potential issues, plan for future expenses, and make informed financial decisions.

Make a plan

It’s also important to establish a clear reserve funding plan that outlines how the association will allocate funds to the reserves over time. The plan should consider factors like the estimated remaining lifespan of assets, the desired funding level, and the homeowners’ ability to contribute. By creating a well-thought-out funding plan, the association can ensure a steady flow of funds into the reserves, avoiding sudden financial issues or shortfalls.

Communicate with homeowners

Homeowners should be educated about the importance of reserves and how their contributions are used. Regularly sharing updates on the status of reserves and future planned expenses helps homeowners understand the association’s financial goals and instills confidence in the association’s management. Additionally, fostering transparency and providing opportunities for homeowners to weigh in on reserve-related matters can create a sense of ownership and cooperation within the community. The new Florida Condominium Law requires the board of directors to include the Unit Owners in all discussions regarding the current maintenance and reserves for future maintenance of the building.

Work with professionals

Lastly, it’s important to work with professionals who specialize in association financial management, as well as the legal aspects. You should always consult your Accountant, the Association’s Attorney, and the property manager or Licensed Community Association Manager (LCAM) for proper guidance. Association reserve funds should be handled by experienced accountants or financial advisors who understand the unique requirements and regulations that come with community associations. These professionals can help the association navigate complex financial matters, ensure compliance with relevant laws, and provide valuable guidance on budgeting, investing, and reserve fund management.

Trust Valley – We are the home of Association Banking

At Valley, we’re here to help association board members like you. Our experienced bankers have a deep understanding of the association industry and can provide the services and solutions that make your job easier. When you work with us, you’re banking with a partner that takes the time to understand your challenges and your goals.

 

 

 

This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for tax, legal or accounting advice.

© 2023 Valley National Bank, All Rights Reserved. Member FDIC, Equal Housing Lender