Does our Association Need to have Healthy Reserves?

A good answer is both “yes” and “no”. Let me explain.

Yes: Typical Governing Documents and the uniform legal expectations of Boardmembers  across the country require Boardmembers to maintain and protect the assets of the corporation on behalf of the owners. In a community association, this means the Board is chartered with the responsibility to budget for the ongoing care of the physical assets of the association. There is no wiggling around that responsibility. That’s a Boardmember’s job, and there’s no one else to blame if community spirit suffers and home values fall due to special assessments and deferred maintenance.

No. Only Hawaii, to my knowledge, has a specific state-wide Reserve Fund requirement standard, and even that standard is low.

So are Healthy Reserves required? I argue for “yes”, but don’t look for it clearly written in a law somewhere. Reserve expenses don’t go away. If you wish to perform Reserve projects in a timely manner and avoid disruptive special assessments and costly deferred maintenance, the best way is to make healthy (adequate) Reserve contributions which build a healthy Reserve Fund. Reserve expenses, not the law, are at the root of the need for Healthy Reserves!

Healthy Reserves maximize well-being in the community, minimize boardmember liability exposure, and maximize property values. They may not always be articulated as a requirement, but Healthy Reserves are the smart thing to do!

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