Reserves vs. Special Assessments

Question: Our state statute states: “Unless otherwise provided in the governing documents, the homeowners association board of directors shall adopt and amend budgets for reserves in an amount adequate to repair and replace major capital items in the normal course of operations without the necessity of special assessments, provided that the amount set aside annually for reserves shall not be less than 10% of the budget for that year.” What does “adequate” mean?

Answer: If a special assessment is required to pay for reserve repairs or replacements, the board has not been reserving adequately and can be held responsible for the shortfall unless the members refused to approve (if their approval was required) annual budgets adequate to fund reserves. In other words, the board cannot be held accountable for something under the control of the members.

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