Protecting a Condo Association Through Proper Reserves Funding

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17 February, 2019 By Gregory Taylor, LCAM, CHA

Although many articles are written about the subject of protecting an association’s common elements through the proper funding of association reserves, most are read and relegated to the proverbial “File 13.”

But as most of us know, pre-planning for anything can save money, worry, time and, yes,even lives. And, it is the lack of planning on the part of condominium associations that can and does create major problems for everyone involved.

The common elements of a condominium development are described in the development’s condo documents, which create the legal entity under which the property operates. These legal documents are a constant, and they bind each owner.

These documents describe who is responsible for the maintenance, upkeep, repair and replacement of the various elements of the property. Additionally, there may be limited common elements associated with an individual piece of property that is for the exclusive use of the owners of the attached piece of property, yet the association may have the responsibility for the maintenance, repair and/or replacement of these elements. Knowing what is each one’s responsibility is very important.

In my opinion, adequate reserves are critical to the financial viability of any common interest property. Some states require reserves on the surface, but give owners an easy method of opting out of reserves by a simple vote at an owner's meeting.

In instances where individuals have bought into an investment type property where the units are typically rented out, there is a general reluctance to maintain adequate reserves, because these owners are going to turn the property over fairly quickly and want the maintenance fees as low as possible.

But remember, a vote not to reserve is a vote for a special assessment in the future.

Those seeking a property to live in now or in the immediate future and who want the protection of adequate reserves, proper maintenanceof the property and future financial and physical viability of the property, must do their homework by asking the following questions:

  1. Does the property have a professional reserve study that is current - within the past two years?
  1. Have the reserve study recommendation been implemented and, if so, are the reserve balances proper?
  1. If the balances aren’t there, is there a plan being followed to eventually reach the proper funding levels based on the reserve study?
  1. Does the board of directors meet at least four times per year?
  1. Are the minutes sent to the owners on a timely basis?
  1. Have you read the minutes for the past year? And are there discussions about special assessments,building and/or environmental problems, etc.?
  1. Have you talked to several people who live in the community on a permanent basis?
  1. Are there active, standing committees, indicating good community participation?
  1. Is the manager or managing agent on site or off site?
  1. Do you know and realize the restrictions on living in a common interest property?
  1. Can you interpret a current financial and balance sheet? If not, seek an expert to assist you in this important step.
  1. What, if any, property will continue to be owned by the developer and/or the managing agent? This is particularly important if the owners association needs offices and other facilities that may have to be leased or rented. This is an expense no one expects.
  1. If there is commercial space on the property, are the users paying their fair share of common expenses, and is this spelled out in the governing documents?

Written by

Gregory Taylor, LCAM, CHA