Depleting Reserves
Adams Stirling PLC
Menu

DEPLETING RESERVES

QUESTION: Is a board limited to spending a certain percentage of the association's reserve fund in one fell swoop? Our board recently used $60,000 from its reserves for one project, leaving only a few thousand in the fund.

ANSWER: Depending upon the maintenance projects involved, some associations have been forced to make repairs even if it meant depleting their reserves. Boards have a duty to make appropriate repairs so as to preserve safety and satisfy their maintenance obligations in the governing documents. If prior boards failed to adequately fund the reserves, current boards may be faced with immediate repairs and limited funding. Boards should not defer needed repairs for the sake of keeping money in reserves--if repairs need to be done (such as replacement of a roof) then the repairs should be done, even if it means depleting the reserves.

Rebuilding Reserves. Boards need to create a plan to fund reserves. If the reserve fund becomes dangerously low after a major project, it means that insufficient funds were accumulated for other projects. This will result in deferred maintenance and/or special assessments for those projects. If the board has properly built up reserve funds, then when the time is right, the right thing to do is to spend the money. Some boards are able to rebuild reserves over time if there are no immediate projects following the initial work. Other boards may be forced to immediately increase dues and/or special assess to build reserves for subsequent needed projects. To lessen the impact on members, some boards may choose to borrow funds from a bank (with membership approval) to fund large projects in the future if the reserves are still insufficient.

ASSISTANCE: Associations needing legal assistance can contact us. To stay current with issues affecting community associations, subscribe to the Davis-Stirling Newsletter.

Adams Stirling PLC