BUDGETS AND RESERVES FOR CONDO's AND HOA's
Part I - Condominiums

    Budgets are not only useful and prudent financial tools, they are mandatory for both Florida condominium associations and Florida Statute 720 Homeowner Associations. In this Issue of eLawyer (Part I - Condominiums) and the next two (Part II - Condominiums continued and Part III - Homeowner Associations), we will review the general requirements for budgets and reserves for both condominium associations and homeowner associations.

    A. Budgets -

        1. Purposes - For all community associations, budgets for both Homeowners Associations (HOA) and Condominium Associations serve several purposes. A) A planning tool to identify operational needs and estimate upcoming expenses. B) A rational method to establish the level of member assessments. C) An operational tool to control expenditures throughout the budget year and to measure financial performance. D) A method to communicate the Association’s operations and condition to its members.

        2. Requirements for Condominium Association Budgets - Florida Statute 718.112(2)(f) provides that condominium association budgets must be detailed and show amounts budgeted by accounts and expense classifications. Administrative Rule 61B-22.003 further specifies that an estimated condo operating budget must: A) State the estimated common expenses or expenditures on at least an annual basis. B) Disclose the beginning and ending dates of the period covered by the budget (note that it is not sufficient simply to identify the budget as 'annual budget 2006'). C) Show the total assessment for different unit types on a monthly basis (or for another period if assessments are due other than monthly). D) Include all estimated expenditures which must include the categories set forth in Florida Statute 718.504(21)(c). If one of these categories is not applicable, it must still be listed, but indicated to be not applicable. E) Include proposed reserves for capital expenditures and deferred maintenance at full funding. (For more on reserves, watch for the next edition of eLawyer.)

    Proposed reserves must show a separate line item indicating: A) the total estimated useful life of the component. B) The estimated remaining useful life. C) The estimated replacement costs or deferred maintenance costs. D) The estimated fund balance at the beginning of the budget period.

    Many condominium associations insist on establishing an account for 'contingent reserves'. These are accounts which are not identified as to a specific reserve component, but are available to pay unanticipated expenses. Any reserve fund that is not specifically identified to a particular component, even if labeled a 'contingent reserve', must be included as an operating account, not a reserve account.

    A multi-condominium association (which operates several separate condominiums) must propose and adopt a separate budget for the common expenses unique to each separate condominium, and a separate budget for the common expenses unique to the multi-condominium association.

    If a condo association under its Declaration maintains limited common elements with the cost shared not by all unit owners, but only those entitled to use the limited common elements, the budget must show these amounts separately budgeted.

        3. Approval of the Proposed Budget - A notice of the budget meeting and copy of the proposed budget must be mailed, hand delivered or electronically transmitted to each unit owner not less than fourteen (14) days before the meeting at which the budget will be considered. While most associations’ governing documents provide for a board approved budget, this is document driven, so if a member vote is required, the meeting to be noticed will be a members’ meeting.

    If a board adopts an annual budget requiring assessments which exceed one hundred and fifteen percent (115%) of the preceding fiscal year’s assessments, a special procedure becomes available to the unit owners. In calculating the one hundred and fifteen percent (115%) figure, do not include expenses for reasonable reserves, anticipated expenses which the board does not expect to be incurred on a regular or annual basis, or assessments for 'betterments' to the condominium property.

    A one hundred and fifteen percent (115%) increase gives the unit owners the possibility of requiring the board to conduct a special unit owner meeting to consider a substitute budget. In order to invoke such a special members meeting, at least ten percent (10%) of all voting interests must transmit to the board within twenty-one (21) days after adoption of the annual budget a written request for such a special meeting. If such a vote is obtained within the twenty-one (21) day time period, the board must mail or hand deliver to each unit owner at least fourteen (14) days prior to the special meeting a notice of the meeting. The special meeting must be conducted within sixty (60) days after adoption of the annual budget. At such a special meeting, the unit owners can consider and adopt a substitute budget, but only if a majority of all voting interests (unless the By-Laws require a greater percentage of voting interests) approve such a substitute budget. If a meeting is properly called, but there is no quorum at the special meeting or a substitute budget is not adopted by the required vote, the previously adopted annual budget takes effect.

    This is a difficult undertaking and it is rare to see a special meeting properly requested by unit owners within the required time periods, and even more rare to obtain a majority of all voting interests to approve a substitute budget.

The firm of Taylor & Carls, P.A., with offices located in Maitland, Melbourne, Tampa and Daytona Beach, Florida, was founded in 1981 and has practiced in the area of community association law since that date. This edition was prepared by Harry W. Carls, Esq. of Taylor & Carls, P.A. The information contained in The Association e-Lawyer should not be acted upon without professional legal advice.
 
 
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