Reserve funding requirements are a growing priority for many South Florida condominiums | Opinion

A new report issued recently by the Community Associations Institute’s Foundation for Community Association Research found that 74.2 million Americans, or roughly 28% of the U.S. population, now live in an HOA/condominium or housing cooperative community. There are approximately 358,000 community associations in the U.S. as of 2021 (nearly 50,000 of which are in Florida, the second most behind California), and the combined property value of all their residences across the country totals almost $11 trillion.

“Community associations have been growing consistently and successfully for decades,” states the group’s press release on the new report. “The overwhelming majority (89%) of homeowners and condominium association residents rate their overall experience living in a community association as ‘very good’ (38%), ‘good’ (28%), or ‘neutral’ (23%), according to the 2022 Homeowner Satisfaction Survey, also produced by the Foundation,” it concludes.

The report indicates that about $26.6 billion in assessments are contributed to association reserve funds for the repair, replacement, and enhancement of common property, e.g., replacing roofs, resurfacing streets, repairing swimming pools and elevators, meeting new environmental standards, and implementing new energy-saving features.

The new Florida condominium legislation requiring buildings three stories and taller to fund reserves and pass engineering inspections will account for many significant increases in association expenses for the state’s aging condo buildings. Such communities will likely be forced to increase their association dues from their owners in order to pay for ongoing operating expenses as well as long-term repairs and replacements.

Role of boards of directors, property managers

For those condominium communities that find their reserves woefully underfunded and in need of significant increases, the boards of directors and property managers must communicate the severity of the situation and answer owners’ questions during their board meetings. Such a proactive approach will be necessary in order to effectively illustrate the true costs of maintaining the community and complying with the new funding and inspection requirements. All associations members will need to be made keenly aware of everything it takes to maintain their community’s standards while also setting aside enough funding for foreseeable long-term maintenance, repair and replacement costs.

Thorough accountings of such projected long-term costs from independent qualified experts is the best approach for associations to answer all their members’ questions and concerns. That is one of the reasons why a reserve study conducted by qualified professionals can serve as an effective centerpiece of associations’ budgeting and planning for long-term maintenance, repairs and replacements. Obtaining a professional reserve study will most certainly assist boards of directors in properly determining annual reserve contributions and funding goals, and will help boards of directors in fulfilling their fiduciary duties.

Reserve studies should provide a thorough overview of the state of all the common areas including roofing, landscaping, building exteriors, parking areas, elevators, swimming pool(s), HVAC equipment, plumbing, electrical, drainage, and other mechanical and common elements. They should carefully examine the findings of comprehensive physical inspections of the property as well as current level of association reserve funds and funding.

Accurately projecting such long-term costs requires ongoing financial monitoring combined with regular inspections by qualified experts. Given all the financial and budgetary pressures that many communities are now facing, home and condominium owners will be demanding full disclosure and complete transparency of all association costs and expenditures. Reserve studies from qualified experts will answer many questions and perhaps also alleviate some of the concerns of association directors and member unit owners. These independent professionals help to provide a thorough and accurate picture of current finances and future expenditures for all to see.

Associations will need to act on reserve studies’ findings

After reserve studies are completed, associations will need to act on their findings and in many cases adjust their finances and long-term budgetary planning. Again, they should turn to qualified association management and financial professionals for such analyses and recommendations, which would first go to the association treasurer and/or finance/budget committee for review and consideration.

Once such financial and budgetary adjustments are implemented and have been underway for one to two years, the reserve study on which they were based should be reviewed and updated by the same or other qualified independent experts. This will help to ensure that any growing maintenance and/or engineering concerns are taken into account.

Living in communities with associations provides ample benefits for owners seeking a hassle-free lifestyle with easy access to superlative services and resort-like amenities. As with everything in life, such benefits come at a cost, and reserve studies and funding are essential to help ensure that all such long-term costs are accounted for in associations’ current and future assessments and budgets.

Marc A. Smiley is a partner with the South Florida law firm of Siegfried Rivera who focuses on community association law. He is based at the firm’s Coral Gables office and is a contributor to its association law blog, www.FloridaHOALawyerBlog.com. www.SiegfriedRivera.com, MSmiley@SiegfriedRivera.com, 305-442-3334.