A reader recently asked a good question, asking for clarification about where the money should come from for a particular expense. The answer illustrates an important concept.
Replacement of their recreation room furniture appears as a line item in their Reserve Study. It is looking old and worn. But instead of replacing it, they have made plans to save some money and re-upholster the furniture. So since it is not replacement, is it an operational maintenance project? Since the component was listed in the Reserve Study, is it a Reserve project?
I firmly believe re-upholstering should be paid from Reserves. This is because it is not a minor “patch” (repair). A re-upholster project will have the effect of extending the Remaining Useful Life of the furniture, thus it is an effective use of Reserve funds.
Differentiating Between a Maintenance and Reserve Expense
In general, a “maintenance” project is considered something normal, ongoing, that is part of the cost of having that asset at the association, and does not (significantly) affect its Remaining Useful Life. Those types of expenses should be paid from the Operating Budget.
On the other hand, if a project extends the life of the asset (re-upholstering, re-sealing, bracing, etc.), it is generally considered an effective use of Reserve Funds, and should be deemed a Reserve Expense.