Florida Reserve Studies

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Florida Reserve Study Laws

Common industry practice is that homeowners associations should perform periodic reserve studies as a prudent business practice.  Directors of associations are generally held to a “prudent businessman” rule in determining whether or not they have met the fiduciary duty of their position for the association.  A prudent businessman would establish a capital replacement budget (reserve study) to make sure he is generating enough revenues (reserve assessments) to provide for major repairs and replacements.

There is little discussion about whether an association should perform a reserve study.  The only significant areas of discussion revolve around how frequently a reserve study should be performed, and if there should be any minimum funding requirements.  Most states that have reserve study statutes require physical site inspections on 3 or 5 year cycles.  We believe that 5 years is too long.  3 years may be too long if significant reserve expenditures are being made during the subject time period.  However, the association should perform an update without site inspection every year as part of the annual budget process.FL-Walkway-FAI-Reserve-Study

Florida has adopted two separate statutes, Chapter 718 for Condominium Associations, and Chapter 720 for Homeowners Associations.

Title XL, Chapter 718, Condominium Associations, describes the responsibilities of the Board of Directors to budget for and determine reserve accounts for capital expenditures and deferred maintenance for which the association is responsible.

Florida Statute 718.112 (f) Annual Budget

718.112 Bylaws.

(2)  REQUIRED PROVISIONS.

(f) Annual budget.—

1. The proposed annual budget of estimated revenues and expenses must be detailed and must show the amounts budgeted by accounts and expense classifications, including, if applicable, but not limited to, those expenses listed in s. 718.504(21). A multicondominium association shall adopt a separate budget of common expenses for each condominium the association operates and shall adopt a separate budget of common expenses for the association. In addition, if the association maintains limited common elements with the cost to be shared only by those entitled to use the limited common elements as provided for in s. 718.113(1), the budget or a schedule attached to it must show the amount budgeted for this maintenance. If, after turnover of control of the association to the unit owners, any of the expenses listed in s. 718.504(21) are not applicable, they need not be listed.

2. In addition to annual operating expenses, the budget must include reserve accounts for capital expenditures and deferred maintenance. These accounts must include, but are not limited to, roof replacement, building painting, and pavement resurfacing, regardless of the amount of deferred maintenance expense or replacement cost, and for any other item that has a deferred maintenance expense or replacement cost that exceeds $10,000. The amount to be reserved must be computed using a formula based upon estimated remaining useful life and estimated replacement cost or deferred maintenance expense of each reserve item. The association may adjust replacement reserve assessments annually to take into account any changes in estimates or extension of the useful life of a reserve item caused by deferred maintenance. This subsection does not apply to an adopted budget in which the members of an association have determined, by a majority vote at a duly called meeting of the association, to provide no reserves or less reserves than required by this subsection. However, prior to turnover of control of an association by a developer to unit owners other than a developer pursuant to s. 718.301, the developer may vote to waive the reserves or reduce the funding of reserves through the period expiring at the end of the second fiscal year after the fiscal year in which the certificate of a surveyor and mapper is recorded pursuant to s. 718.104(4)(e) or an instrument that transfers title to a unit in the condominium which is not accompanied by a recorded assignment of developer rights in favor of the grantee of such unit is recorded, whichever occurs first, after which time reserves may be waived or reduced only upon the vote of a majority of all nondeveloper voting interests voting in person or by limited proxy at a duly called meeting of the association. If a meeting of the unit owners has been called to determine whether to waive or reduce the funding of reserves, and no such result is achieved or a quorum is not attained, the reserves included in the budget shall go into effect. After the turnover, the developer may vote its voting interest to waive or reduce the funding of reserves.

3. Reserve funds and any interest accruing thereon shall remain in the reserve account or accounts, and may be used only for authorized reserve expenditures unless their use for other purposes is approved in advance by a majority vote at a duly called meeting of the association. Prior to turnover of control of an association by a developer to unit owners other than the developer pursuant to s. 718.301, the developer-controlled association shall not vote to use reserves for purposes other than that for which they were intended without the approval of a majority of all nondeveloper voting interests, voting in person or by limited proxy at a duly called meeting of the association.

4. The only voting interests that are eligible to vote on questions that involve waiving or reducing the funding of reserves, or using existing reserve funds for purposes other than purposes for which the reserves were intended, are the voting interests of the units subject to assessment to fund the reserves in question. Proxy questions relating to waiving or reducing the funding of reserves or using existing reserve funds for purposes other than purposes for which the reserves were intended shall contain the following statement in capitalized, bold letters in a font size larger than any other used on the face of the proxy ballot: WAIVING OF RESERVES, IN WHOLE OR IN PART, OR ALLOWING ALTERNATIVE USES OF EXISTING RESERVES MAY RESULT IN UNIT OWNER LIABILITY FOR PAYMENT OF UNANTICIPATED SPECIAL ASSESSMENTS REGARDING THOSE ITEMS.

 

720.303 Association powers and duties; meetings of board; official records; budgets; financial reporting; association funds; recalls.

(6) BUDGETS.—

(a) The association shall prepare an annual budget that sets out the annual operating expenses. The budget must reflect the estimated revenues and expenses for that year and the estimated surplus or deficit as of the end of the current year. The budget must set out separately all fees or charges paid for by the association for recreational amenities, whether owned by the association, the developer, or another person. The association shall provide each member with a copy of the annual budget or a written notice that a copy of the budget is available upon request at no charge to the member. The copy must be provided to the member within the time limits set forth in subsection (5).

(b) In addition to annual operating expenses, the budget may include reserve accounts for capital expenditures and deferred maintenance for which the association is responsible. If reserve accounts are not established pursuant to paragraph (d), funding of such reserves is limited to the extent that the governing documents limit increases in assessments, including reserves. If the budget of the association includes reserve accounts established pursuant to paragraph (d), such reserves shall be determined, maintained, and waived in the manner provided in this subsection. Once an association provides for reserve accounts pursuant to paragraph (d), the association shall thereafter determine, maintain, and waive reserves in compliance with this subsection. This section does not preclude the termination of a reserve account established pursuant to this paragraph upon approval of a majority of the total voting interests of the association. Upon such approval, the terminating reserve account shall be removed from the budget.

(c)1. If the budget of the association does not provide for reserve accounts pursuant to paragraph (d) and the association is responsible for the repair and maintenance of capital improvements that may result in a special assessment if reserves are not provided, each financial report for the preceding fiscal year required by subsection (7) must contain the following statement in conspicuous type:

THE BUDGET OF THE ASSOCIATION DOES NOT PROVIDE FOR RESERVE ACCOUNTS FOR CAPITAL EXPENDITURES AND DEFERRED MAINTENANCE THAT MAY RESULT IN SPECIAL ASSESSMENTS. OWNERS MAY ELECT TO PROVIDE FOR RESERVE ACCOUNTS PURSUANT TO SECTION 720.303(6), FLORIDA STATUTES, UPON OBTAINING THE APPROVAL OF A MAJORITY OF THE TOTAL VOTING INTERESTS OF THE ASSOCIATION BY VOTE OF THE MEMBERS AT A MEETING OR BY WRITTEN CONSENT.

2. If the budget of the association does provide for funding accounts for deferred expenditures, including, but not limited to, funds for capital expenditures and deferred maintenance, but such accounts are not created or established pursuant to paragraph (d), each financial report for the preceding fiscal year required under subsection (7) must also contain the following statement in conspicuous type:

THE BUDGET OF THE ASSOCIATION PROVIDES FOR LIMITED VOLUNTARY DEFERRED EXPENDITURE ACCOUNTS, INCLUDING CAPITAL EXPENDITURES AND DEFERRED MAINTENANCE, SUBJECT TO LIMITS ON FUNDING CONTAINED IN OUR GOVERNING DOCUMENTS. BECAUSE THE OWNERS HAVE NOT ELECTED TO PROVIDE FOR RESERVE ACCOUNTS PURSUANT TO SECTION 720.303(6), FLORIDA STATUTES, THESE FUNDS ARE NOT SUBJECT TO THE RESTRICTIONS ON USE OF SUCH FUNDS SET FORTH IN THAT STATUTE, NOR ARE RESERVES CALCULATED IN ACCORDANCE WITH THAT STATUTE.

(d) An association is deemed to have provided for reserve accounts if reserve accounts have been initially established by the developer or if the membership of the association affirmatively elects to provide for reserves. If reserve accounts are established by the developer, the budget must designate the components for which the reserve accounts may be used. If reserve accounts are not initially provided by the developer, the membership of the association may elect to do so upon the affirmative approval of a majority of the total voting interests of the association. Such approval may be obtained by vote of the members at a duly called meeting of the membership or by the written consent of a majority of the total voting interests of the association. The approval action of the membership must state that reserve accounts shall be provided for in the budget and must designate the components for which the reserve accounts are to be established. Upon approval by the membership, the board of directors shall include the required reserve accounts in the budget in the next fiscal year following the approval and each year thereafter. Once established as provided in this subsection, the reserve accounts must be funded or maintained or have their funding waived in the manner provided in paragraph (f).

(e) The amount to be reserved in any account established shall be computed by means of a formula that is based upon estimated remaining useful life and estimated replacement cost or deferred maintenance expense of each reserve item. The association may adjust replacement reserve assessments annually to take into account any changes in estimates of cost or useful life of a reserve item.

(f) After one or more reserve accounts are established, the membership of the association, upon a majority vote at a meeting at which a quorum is present, may provide for no reserves or less reserves than required by this section. If a meeting of the unit owners has been called to determine whether to waive or reduce the funding of reserves and such result is not achieved or a quorum is not present, the reserves as included in the budget go into effect. After the turnover, the developer may vote its voting interest to waive or reduce the funding of reserves. Any vote taken pursuant to this subsection to waive or reduce reserves is applicable only to one budget year.

(g) Funding formulas for reserves authorized by this section must be based on a separate analysis of each of the required assets or a pooled analysis of two or more of the required assets.

1. If the association maintains separate reserve accounts for each of the required assets, the amount of the contribution to each reserve account is the sum of the following two calculations:

a. The total amount necessary, if any, to bring a negative component balance to zero.

b. The total estimated deferred maintenance expense or estimated replacement cost of the reserve component less the estimated balance of the reserve component as of the beginning of the period the budget will be in effect. The remainder, if greater than zero, shall be divided by the estimated remaining useful life of the component.

The formula may be adjusted each year for changes in estimates and deferred maintenance performed during the year and may include factors such as inflation and earnings on invested funds.

2. If the association maintains a pooled account of two or more of the required reserve assets, the amount of the contribution to the pooled reserve account as disclosed on the proposed budget may not be less than that required to ensure that the balance on hand at the beginning of the period the budget will go into effect plus the projected annual cash inflows over the remaining estimated useful life of all of the assets that make up the reserve pool are equal to or greater than the projected annual cash outflows over the remaining estimated useful lives of all the assets that make up the reserve pool, based on the current reserve analysis. The projected annual cash inflows may include estimated earnings from investment of principal and accounts receivable minus the allowance for doubtful accounts. The reserve funding formula may not include any type of balloon payments.

(h) Reserve funds and any interest accruing thereon shall remain in the reserve account or accounts and shall be used only for authorized reserve expenditures unless their use for other purposes is approved in advance by a majority vote at a meeting at which a quorum is present. Prior to turnover of control of an association by a developer to parcel owners, the developer-controlled association shall not vote to use reserves for purposes other than those for which they were intended without the approval of a majority of all nondeveloper voting interests voting in person or by limited proxy at a duly called meeting of the association.

 

 

 

Additional State Reserve Study Laws

 

 

Florida Reserve  Studies

Facilities Advisors Florida. has been preparing reserve studies since 1982, and in Florida since 2006.  We have worked with CDD, condominium, homeowners, and timeshare associations in the following areas of Florida; Miami, Orlando, Daytona Beach, Naples, and New Smyrna Beach.

  1. We wrote the book on reserve studies - "Reserve Studies - The Complete Guide"
  2. We wrote the standards on reserve studies - ICBI's Generally Accepted Reserve Study Standards - Facilities Advisors president Gary Porter is also president of the International Capital Budgeting Institute (ICBI)
  3. We use certified software guaranteed for accuracy - Our Facilities 7 internet-based software has been certified by ICBI and tested by an independent CPA firm

We have prepared numerous reserve studies for all types of associations; condominiums, planned developments, timeshare associations, and cooperatives. Benefits of selecting Facilities Advisors Florida for your reserve study:

  • Competitive fees
  • Responsiveness
  • Easy-to-read reports
  • Internet-based software available to our clients

Competitive fees - We are able to provide competitive fees because of our extensive experience and dedication to using technology to make our services more efficient.  This also translates into time savings and the ability to keep fees competitive.  We are the only reserve study company to have developed software to electronically capture component data on site, which reduces the amount of time necessary to gather component data and translate that information into a reserve study report. FL-Beach-FAI-Reserve-Study

We "scope" the reserve study so that level of component detail matches how money is expended by the association, as that is the ONLY way the reserve study can ever be correlated to your association financial statements.  We ask you questions and help tailor the reserve study to your unique association.  Our internet-based software, with a multi-dimensional database structure (hidden in the background) and capabilities for three category levels plus major and minor components, gives us the ability to provide data at the correct level, and still be able to "roll up" the data into concise reports.  

Responsiveness - We are responsive to your needs.  If you request changes to your report, we will make them.  After all, it is your report.

Easy-to-read reports - Our reports are prepared at a summary level for easy comprehension, followed by detail reports as supplemental schedules.  This keeps the "official" reserve study report small enough to provide to members and others, and the detail supplmental schedules can be used internally by management.  Different reports for different users.  We also provide any statutory and regulatory disclosures.  We give you the information you need to (1) prepare your budget, and (2) communicate summary in formation to your board of directors and members.

Internet-based software - We also provide access to the same internet-based software we used to prepare your reserve study.  This allows you to keep your reserve plan up-to-date, and save money in the future by (1) proactively planning reserve projects, and (2) minimizing future reserve study costs based on your update of component information.

Call us today for a free proposal.   (813) 444-8022 or  (877) 305-6700

You win with our unique approach to reserve studies; competitive fees, easy-to-read reports, a component structure tailored to YOUR association, and access to our internet-based software.  This is not just an Excel workbook, we give you access to the same software we use to perform your reserve study - the most powerful software in the industry, which has been tested by an independent CPA firm for accuracy of calculations.  We work WITH our clients to help you achieve the best outcome.

Our Goals for your Reserve Study

Our primary goal is to make your reserve study something more than simply the fulfillment of a statutory obligation. We believe that the reserve study should be a functional tool used in the financial management of the association. This means that the reserve study needs to be realistic. Too often, we hear from new clients that they don't believe their prior reserve study was correct. We believe that the reserve study should be a reflection of the Association's actual maintenance plan. Therefore we will ask you questions about recently completed and planned future reserve expenditures. While none of us can accurately predict the future over the next 30 years, the association's facilities manager usually has very concrete short-term plans (over the next 1 to 3 years). We attempt to incorporate that plan into the reserve study, otherwise it serves little purpose.

Our secondary goal is to make sure that your reserve study complies with statutory requirements.

Reserve Study Services

The advantage of using Facilities Advisors Florida, Inc. for your reserve study is that we can provide you with information that no one else can provide, such as a complete inventory by location, down to the level that we can show you every common area component in a specific room.FL-Fountain-FAI-Reserve-Study

A Facilities Advisors Florida, Inc. reserve study provides you with a dynamic management tool. Our reserve study is a management tool, not a static "once every three years" report.

Levels of Service

Facilities Advisors Florida, Inc. offers three levels of reserve study services; Level 1 - Full Reserve Study, Level 2 - Update of Reserve Study with Site Inspection, and Level 3 - Update of Reserve Study Without Site Inspection.

Level 1 - Full Reserve Study

We perform a complete site inspection, obtaining or verifying measurements and counts of common area components. This also includes an evaluation of condition and photo inventory of most components. We then compile the information obtained into our easy-to-understand reports.

Level 2 - Update of Reserve Study with Site Inspection

Once a full reserve study has been completed by Facilities Advisors Florida, Inc., we will often perform updates with a site inspection. The level 2 site inspection is less comprehensive than a level 1 site inspection in that we do not obtain or verify measurements and counts unless it appears that there have been changes. We do evaluate condition and update the photo inventory where necessary. We then compile the information obtained into our easy-to-understand report.

Level 3 - Update of Reserve Study Without Site Inspection

An annual update to the reserve study is simply good planning. This allows you to "refresh" the funding plan and account for minor variations form the original funding plan. We inquire about expenditures made, changes in pricing of replacement costs, and variations in funding from the original plan, but do not perform a site inspection. This is a valuable planning tool at a very reasonable cost, generally no more than 25% of the cost of a full study.

 

Visit our national office web site at www.reservestudyusa.com to see our full range of services as well as sample reports.

Timeshare Associations

Sample Reserve Study

Request for reserve study proposal form

 

Contact Us - Facilities Advisors Florida

foto PDR 1r

Pierre Del Rosario RS, RSS.

Facilities Advisors Florida
14502 N Dale Mabry, Suite 200
Tampa, Florida 33618

AND

150 SE 2nd Avenue, 3rd Floor
Miami, Florida  33131

Florida telephone: (813) 444-8022

National office telephone: (877) 304-6700
National fax: (805) 715-0586

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Sample Reserve Study

This  Sample Reserve Study FLis for a small planned development project.  Notice how each financial exhibit presents a summary by category.  This serves two functions; it keeps the report small enough so that it is not too imtimidating, and it allows the reader to focus on the big picture.  The detail component list is also presented at the component level as required by industry standards.  This is a reserve study report that is easy to understand.
Sample Supplemental Schedules:

Schedules presenting the details at the component level are presented separate from the report as supplemental information.  For those individuals that want to see all the detail supporting the financial exhibits summarized at the component level, this is the place to go.   Supplementary schedules FL for the above referenced reserve study are also available for viewing.

We purposely separate the report into two parts representing summary and detail information, as it allows the reader to easily determine how much information they want to see.