The topic of “reserves” in community associations is one which can be confusing. Chapters 718 (governing condominiums), 719 (governing cooperatives) and 720 (governing homeowners associations) of Florida Statutes each contain provisions regarding reserves. However, while similar in some respects, the statute for homeowners associations, in particular have significant differences.
For condominiums, reserves are required to be included in all proposed budgets each year, as set forth in Section 718.112(2)(f) F.S. Reserves are required to be included for roof, painting, paving and any item of deferred maintenance that will cost over $10,000.00. A separate schedule for the reserves is required to be included in the budget and the method of calculating the amount that must be reserved is provided in Section 61B-22.005 of the Florida Administrative Code. Funds held in reserve may only be used for the matter for which they are being held unless a different use is approved in advance by a vote of the unit owners. The Statute also allows an association to consider reducing or entirely waiving the reserves each year. Whether it be for using the funds for a different purpose, or to reduce or waive them, the association must obtain the vote of a majority of the unit owners present at a meeting of the membership at which a quorum has been established. Unless a lower number is provided in the governing documents, a majority of the unit owners constitutes a quorum. The actual number of votes needed in such a vote will therefore depend on how many unit owners participate in the vote.
For cooperatives, Section 719.106(1)(j) F.S. contains substantially the same provisions as for condominiums and should be treated in the same fashion.
For homeowners associations, the issue of reserves was added to the Statute relatively recently, in 2007. Prior to this change by the Legislature, there was no statutory provision for reserves in homeowners associations and any limitation on the use of funds held in reserves would have to have been in the governing documents of the community. Any reserves that were included in an annual budget could be used for other purposes than for what the budget indicated without a vote of the owners, by board vote alone. This condition continues to exist in many communities notwithstanding the changes in the Statute in 2007.
At that time, Section 720.303(6)(d) F.S. was added, identifying that “protected” reserves (or funds that could only be used for the specified purpose unless an alternate use was approved by a vote of the owners) could exist in only one of two ways. The first manner is if the developer of the community created the reserves (the vast majority of existing homeowners association in 2007 did not have developer-created reserves). The second method is upon a vote of the members of the association, by a majority of the total voting interests. Once the homeowners approve the inclusion of protected reserves in the budget, the board is then required to include them in the annual budget each year thereafter. The homeowners then have the right to reduce or waive them each year and to vote to use them for alternate purposes, by the same method as described above for condominiums and cooperatives.
Only a homeowner association community that has had a vote of the homeowners (or had reserves initially established by the developer) will have the “protected” reserves that cannot be used for other purposes without a vote of the owners. Many homeowner association communities that never had such a vote (or developer-created reserves) have for years included a “reserve” line item in the budget. These are effectively and should be considered “board-created reserves.” In many such instances, the boards only use the funds for the specific purposes for which they are being held, but if they choose to use them for other purposes (within the scope of the association authority to spend money), homeowners would have no legal grounds to object. This is because board-created reserves are more properly considered “contingency funds” which may be used by the board for any legitimate purpose of the association, as set forth in the governing documents for the community, and relevant Florida Statutes.