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 II - Condominiums continued) and the next issue (Part III - Homeowner Associations), we will continue to review the general requirements for budgets and reserves for both condominium and homeowners Associations.

    B. Reserves -

    Condominium Associations - The requirements for reserve accounts for Florida Condominiums are far more rigid and specific than that required for HOA’s. The Florida Condominium Act and promulgated Administrative Rules have long favored a condo association fully funding reserve accounts for major building components. A proposed annual budget must include fully funded reserve accounts for capital expenditures and deferred maintenance. Such accounts must include: 1) roof replacement; 2) building painting; 3) pavement resurfacing; 4) any other item for which deferred maintenance expense or replacement costs exceed ten thousand dollars ($10,000.00). A condo association may also establish other reserve accounts if it so chooses.

    The actual amount to be included in the reserve account must be computed based upon the estimated remaining useful life of the component and the estimated replacement costs or deferred maintenance expense. Although not a requirement, and not an expense which needs to be incurred annually, a prudent condo association will engage an engineering consultant or reserve study consultant to assist in determining the amount of a reserve account. The association should, however, annually re-visit each reserve account and make adjustments for variables such as projected increased costs to maintain/replace, or discovery of accelerated deterioration of a component (both requiring increased reserves) and performance of maintenance and replacement of components during the previous year (possibly justifying a downward adjustment).

    Consistent with the policy of favoring fully funded reserves, reserves must be included in every proposed annual budget. If reserves are to be only partially funded, or waived completely, it requires a majority vote of the members at a duly called meeting. If such a vote is not achieved, or no quorum is present, the proposed fully funded reserves go into effect.

    In a multi-condominium association, only those unit owners subject to assessment to fund a particular reserve account are entitled to vote to either use the reserve funds for a different purpose or to waive or reduce the amount of reserves. Thus, if a condominium association manages and operates several separate condominiums each with its own declaration of condominium, the association must have a separate budget for each condominium, plus a budget for its own operations. Each separate proposed condominium budget must include fully funded reserves. If they are to be partially funded, or waived by member vote, only those assessable members in a separate condominium can vote as to that condominium’s reserves.

    Once a condominium reserve account has been established, the fund and any interest attributable to that fund must remain in that reserve account or be used only for that authorized reserve purpose. Use of the specific fund or its interest for any other purpose requires approval in advance by a majority vote of the members at a duly called meeting. Where a developer still controls the condo association, a vote to approve the use of reserves for other purposes must be approved by a majority of the non-developer voting interests, voting in person or by limited proxy at a duly called members meeting.

    C. Pooling of Reserves - Reacting to a need for more flexibility in the use of condominium reserve accounts, in December 2002, the Florida Division of Condominiums amended the administrative code governing the budget process as it applies to condominium reserves. (See Sections 61B-22.003 and 61B-22.005 of the Florida Administrative Code; see also 'Pooling Method for Condominium Reserves', the Association eLawyer, Volume II, Issue 12).

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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