Association Budget Time Approaching

By Joe Adams
Law Offices of Becker-Poliakoff, P.A.
Reprinted from the Fort Myers News-Press, 10/28/2004

Provided as a courtesy. Please visit: www.becker-poliakoff.com

November is budget time for community associations. Over the next thirty days, thousands of associations throughout Florida will be planning on how to spend billions of dollars on goods and services in 2005. Although the shoe has not yet dropped, most associations can likely plan for substantial hikes in insurance premiums. Additionally, many communities will be seeking to replenish depleted reserve and contingency funds spent in the wake of the historic 2004 hurricane season.

As in most matters, the law for condominium associations is more specific in its requirements, and more complicated than the homeowners’ association counterpart.

For condos, the proposed budget must be mailed (or hand-delivered) to each unit owner at least fourteen days in advance of the meeting where the budget will be considered (some older bylaws require lengthier notice, such as thirty days, and that should be followed). In most cases, the board of directors adopts the budget (no membership vote is required), although the bylaws may require unit owner approval. The association’s proposed budget package must contain the proposed operating budget. The operating budget must list anticipated operating expenses for the association, and must set forth a laundry list of items mentioned in the condominium statute.

The second part of the proposed budget is the reserve budget. Every condominium association must present the unit owners with a schedule of “fully funded” reserves for roof replacement, building repainting, pavement resurfacing, and any other component of the condominium property with a replacement cost in excess of $10,000.00 (typical examples would include swimming pools, tennis courts, fencing, common area decorations, and elevators). Unless the members have voted to reduce or waive the funding of reserves, the Board has no discretion and must include fully funded reserves in the adopted annual budget. If reserves are to be waived, a vote of the unit owners must be taken, with majority approval required. The notice for the members’ meeting must include a fully funded reserve schedule, and if a waiver or reduction vote is contemplated, should also include the Board’s recommendation as to what the owners are voting on in terms of reduced reserves. Under a recent change to the law, reserve funds may be presented either on a “straight line” or “cash flow” method of funding reserves, although a unit owner vote is required to convert existing reserve funds from “straight line” to “cash flow.”

For HOAs, the law is simpler. First, reserve funds are not required to be set up unless required by the governing documents for the HOA. Nonetheless, it is certainly a good idea to include reserves within those areas for which the Association has financial exposure, and nothing in the law prohibits including reserves in the proposed budget for the HOA.

Likewise, the proposed operating budget need not follow any specific statutory formula, but should include the anticipated expenses for the year. Unlike the condominium law, Chapter 720 of the Florida Statutes (the law regulating homeowners’ associations) does not require a copy of the proposed budget to be mailed to the owners, although the association must notify owners, in writing, that a copy of the budget is available from the association free of charge. Again, the bylaws may impose additional procedures which the association must follow as part of its budget adoption process.

Association assessments, like taxes, are never popular. However, when you consider what you get for your monthly dues (in condominiums, items like building insurance, water and sewer, and even cable television are often included), and compare it to the costs of single family home ownership, it is still one of the best deals around.

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