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 e-Lawyer, part 3 in a 3-part series, we will review the general requirements for budgets and reserves for homeowners associations.

A. Budgets -

    1. Purposes - 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 - The budget requirements under Florida Statute 720 are far less specific than under the Condominium Act. An HOA is required to prepare an annual budget which must show the estimated revenues and expenses for the budget year, and an estimated surplus or deficit for the end of the current year.

    An HOA budget must show separately any charges for recreational facilities, whether they are owned by the developer, the association or a third party. The Association must provide each member with a copy of the annual budget or a written notice that a copy of the budget is available at no charge to the member upon request.

    3. Approval of Proposed Budgets - Consult the governing documents to determine whether the budget must be approved by a vote of the members or by the board of directors. If membership approval is required, Florida Statute 720.306(5) requires the By-Laws to provide for the same notice to members as for all member meetings. If the By-Laws do not provide for such notice, the statute requires that all parcel owners and members be given notice by mail, hand delivery or electronic transmission not less than fourteen (14) days prior to the meeting.

    If the HOA governing documents provide for approval of the budget at a board meeting, Florida Statute 720.303(2) provides for a forty-eight (48) hour notice, unless the governing documents require a longer notice. In addition, it appears that recent amendments to Florida Statute 720.303 require two (2) additional steps. The regular notice for the board meeting must include the fact that a regular annual assessment will be considered at the board meeting, since the result of a board adopted budget includes establishment of these assessments. In addition to this regular notice of a board meeting, a special written notice must also be mailed, delivered, or electronically transmitted to all members at least fourteen (14) days before the board meeting, announcing that a regular annual assessment may be considered.

    B. Reserves - Unlike condominiums, homeowners associations are not required under Florida Statute 720 to maintain reserve accounts. Florida Statute 720 does require that reserve accounts be included in financial reports 'if maintained by the association.'

    The American Institute of Certified Public Accountants (AICPA) does not use the term 'reserves', but instead uses 'future major repairs and replacements'. AICPA does not require reserve accounts, but its guidelines do point out the benefits of reserves. These benefits include assuring the availability of funds when needed, providing an equitable method of charging current owners with the cost of current use of assets, and preserving the existing market value of the property.

    The primary guide for an HOA, however, in determining whether it is required to establish reserve accounts, and if so the procedures associated with this process, are the provisions of the governing documents.

    In a more recent development, some county and municipal governments have begun to require HOA reserve accounts with regard to road systems and surface water drainage systems, particularly when a community owns its own roadways and limits public access through the use of gates. Typical of such local codes are the imposition of specific reserve requirements which must be included in the governing documents when a developer records an initial declaration.

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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