Should a Reserve Fund Policy Ever be Unfair?
So much of the field of Reserve Studies and reserve fund budgeting is about being fair. The core goal is attempting to have the owners enjoying the use of the association’s assets pay for the deterioration that occurred to those common area assets during their time of ownership. So should an association ever implement a reserve fund policy perceived to be unfair?
It seems like a policy of fairness is a good policy. But “seems like” is not an appropriate standard to run an association by, or to establish reserve fund policy. When examined closely, every association is fundamentally unfair in one way or another. It is not fair that some people get a preferred parking spot. It is not fair that some units have more scenic views. It is not fair that the family with four children pays the same monthly fee as the absentee owner who never uses the pool or the tot-lot.
In actuality, every association has Governing Documents that dictate the powers and responsibilities of the Board, define common areas assets, and divide maintenance responsibilities between owners and the association. Governing Documents take fairness out of the reserve fund policy equation, since they legally define how to run the association.
I have seen client associations attempt to exempt ground-floor owners from paying into the elevator portion of reserve fund, and ground floor owners from paying into the balcony repair portion of reserve fund. If these precedents are set, what’s next? Should associations have only top floor owners pay for roof repairs and replacements, and charge for hallway carpet replacement based on the number of people living in a unit?
While fairness is often a good guide, the answer is that reserve fund policy should be guided by the association’s Governing Documents. If the documents say everyone pays equal assessments, then everyone pays equally into the reserve fund, no matter if they have a two-bedroom or three-bedroom unit, or if they use the tennis court or not.
The Board’s responsibility is to run the association as dictated by the Governing Documents, not by a sense of fairness. While fairness is generally perceived as a good policy, fairness does not define how to operate an association. Governing Documents define how to operate an association and how to budget for the reserve fund.