Reserve funds are a key financial asset for your association, and provide a valuable source of funding for costly repairs, replacements and emergencies. Despite the importance of this resource, many Condominium Owners Associations are unsure as to what is needed to fund their reserve. Specifically, this blog will address two (2) concerns:
(1) What is required to fund the reserve account; and
(2) Requirements imposed by the newly passed Senate Bill 4D condominium inspection law as well as recent amendments to a significant portion of Florida Statutes Section 718, and how these will impact the operation of Condominium Owners Associations here in Florida.
What Is Reserve Funding? What Is Required to Fund the Reserve Account?
Reserve Funding is essentially a savings account for your association used to save money for costly repairs and replacements of community property. Think of it as the Association’s piggy bank or rainy-day jar. Reserve funds are typically spoken of as being held in one of two ways: pooled reserves and non-pooled reserves. Pooled reserves are funding for multiple assets (roofs, sidewalks, etc.) that are combined into one general account from which all expenses are paid. Non-pooled reserves are when each asset has its own account dedicated to its repairs and upkeep. Funds cannot be transferred under a non-pooled reserve method. Reserve accounts are often found to be underfunded significantly for the amount that could and should be done to keep the association’s community property in good working order.
As of December 31, 2024, for items required to be included in a Structural Integrity Reserve Study (more on this briefly), an Association may no longer use those itemized reserve funds (or any interest accruing thereon) for other purposes, and an Association may only use those itemized reserve funds for their designated purposes. Essentially, the use of pooled reserve funds has been eliminated by the amendment of Florida Statutes Section 718.
Recently, the Florida Senate rewrote and amended a significant portion of Florida Statutes Section 718, including the portion regarding reserve funding or a lack thereof. Florida Statutes Section 718.112(2)(f)(2a) reads:
“The members of a unit-owner-controlled association may determine, by a majority vote at a duly called meeting of the association, to provide no reserves or less reserves than required by this subsection. Effective December 31, 2024, the members of a unit-owner-controlled association may not determine to provide no reserves or less reserves than required by this subsection for items listed in paragraph (g).”
Paragraph g of the Florida Statutes Section 718.112(2) as noted by the above section states: An association must have a structural integrity reserve study completed at least every 10 years after the condominium’s creation for each building on the condominium property that at a minimum, inspects the roofs, load-bearing walls or other primary structural members, floors, foundations, fireproofing and fire protection systems, plumbing, electrical systems, waterproofing and exterior painting, and windows.
So how may an Association Board go about changing their reserve funding? The board must present a proposed budget to the community assuming full reserve funding. For instance, let’s say an association seeks to reduce or waive their current reserve funding. The association cannot hold a vote to waive or reduce reserve funding until after a proposed budget with full reserve funding has been provided to the membership. If the board would like to put a vote on the table to reduce or waive reserves funding, then they should provide (along with the proposed budget which must be distributed 14 days prior to the budget meeting): (1) a second budget with waived or reduced reserves and (2) a limited proxy to be filled out by unit owners specifically requesting the membership to vote on the second budget. The proxy must include the following wording per Florida Statutes:
“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.”
To successfully reduce or waive reserve funding, a majority of the membership (i.e., 51% of unit owners) must vote in favor of the reduction/ waiver. If by the time of the budget meeting arrives the association has received insufficient votes, the board may delay approving the budget to attempt to collect more votes. If a majority vote is not obtained, the board must approve the budget with full reserve funding. If a majority vote is obtained, the board must proceed with the waived or reduced reserve funding. It is important to note that any vote to waive or reduce reserves is only effective for one annual budget. Therefore, the vote must be obtained for every year the board would prefer not to fully fund reserves.
Senate Bill 4D
Senate Bill 4D was passed as a response to the tragedy in Surfside, Florida that occurred last year when a condominium building collapsed after a long history of maintenance problems and shoddy construction techniques. Senate Bill 4D was effective as of 05.26.2022 and entered fully into Chapter 2022-269 as of 06.29.2022, and the general bill reads as follows:
“Building Safety; Providing that the entire roofing system or roof section of certain existing buildings or structures does not have to be repaired, replaced, or recovered in accordance with the Florida Building Code under certain circumstances; requiring condominium associations and cooperative associations to have milestone inspections performed on certain buildings at specified times; authorizing local enforcement agencies to prescribe timelines and penalties relating to milestone inspections; revising the types of records that constitute the official records of a condominium association; prohibiting certain members and associations from waiving or reducing reserves for certain items after a specified date, etc.”
Specifically, a few sections should be noted to be of great importance with regard to the upkeep of the condominium buildings. Section 3 of Section 55.3899(2)(b) was added to define “substantial structural deterioration”. It defines substantial structural deterioration as distress that negatively affects a building’s general structural condition and integrity. But it does further note that the term does not include surface imperfections such as cracks, distortion, sagging, deflections, misalignment, signs of leakage, or peeling of finishes unless a licensed engineer or architect performing inspection determines that such surface imperfections are a sign of substantial structural deterioration.
Further, concern has been expressed regarding the new “milestone inspection” requirement laid out by Senate Bill 4D. This Senate Bill does not require milestone inspections for condominium and cooperative buildings two stories or less. Per the latest revisions by the Florida Senate to Florida Statutes Section 718, condominium and cooperative buildings three stories and over must receive an inspection within a certain time frame that meets the new milestone inspection requirements for structural integrity. Those that are two or one story do not have to follow the set year inspection requirements, but one should be aware that lawmakers and legislators are looking closely at the condition of condominium buildings when it comes to resident safety.
However, as to balconies specifically, if the balcony is supported by items that hold general structural integrity, they are considered under the list to watch for substantial structural deterioration. If left unfixed and without inspection and a balcony structure fails or an individual is injured while the Board of Directions and Community Association Manager is aware of potential substantial structural deterioration regarding the balconies, then such a failure is a breach of an officers and directors’ fiduciary relationship to the unit owners under Florida Statutes Section. 718.111(1).
The attorneys at The Orlando Law Group represent condominium owners as well as COAs in Orlando, Waterford Lakes, Altamonte Springs, Winter Garden, Lake Nona, St. Cloud, Kissimmee, and throughout central Florida.
If you are a condominium owner, or an Association board member, please reach out to our office at 407-512-4394, fill out our online contact form or save this information in case you ever find yourself or a loved one needing to use it. We provide representation and legal services for both homeowners and Associations alike.
If you have questions about anything discussed in this article or other legal matters, give our office a call at 407-512-4394 or fill out our online contact form to schedule a consultation to discuss your case. We have an office conveniently located at 12301 Lake Underhill Rd, Suite 213, Orlando, FL 32828, as well as offices in Seminole, Osceola and West Orange counties to assist you.
In Florida, it is common for homeowners or condominium owners to live in a community with a Homeowners Association or a Condominium Owners Association, generally referred to as an HOA or a COA, respectively. Associations are commonly found in housing or property developments where people share a common area or amenities, such as:
- Planned or private neighborhoods.
- Subdivisions.
- Gated communities.
- Condominiums.
- Townhome complexes.
- Apartment buildings.
While the overall goal of most HOAs or COAs is to improve living standards within the community and maintain or increase property values, part of an HOA or COA’s responsibilities also include protecting the health, safety and welfare of the community which they serve. This mission is sometimes put to the test when an emergency situation arises within the community, such as during a natural disaster, during a health crisis such as a pandemic, or during a time of civil unrest. To include some more recent examples, many local HOAs and COAs faced challenges as to how to provide a proactive yet effective response during the COVID-19 pandemic and, more recently, during Hurricane Ian.
Certain emergency situations may call for a rapid response and thorough preparation from the HOA or COA in order to safeguard the wellbeing of the community. To this end, an Association’s ordinary powers can sometimes be expanded during times of emergency. These expanded powers are typically referred to as “emergency powers,” and can serve as a key source of guidance and leadership during crises.
The authority of HOAs and COAs to enforce their rules and regulations is rooted in statutory authority. Chapter 720 of the Florida Statutes empowers and controls the ability of HOAs to enforce their rules in Florida, whereas Chapter 718 of the Florida Statutes empowers and controls the ability of COAs to enforce their rules in Florida. In regard to the issue of emergency powers for HOAs and COAs, Florida Statute 720.316 provides guidance as to HOAs, while Florida Statute 718.1265 sheds light on powers for COAs.
As to emergency powers for HOAs, Florida Statute 720.316 states, in summary:
(1) To the extent allowed by law, unless specifically prohibited by the declaration or other recorded governing documents, and consistent with s. 617.0830, the board of directors, in response to damage or injury caused by or anticipated in connection with an emergency, as defined in s. 252.34(4), for which a state of emergency is declared pursuant to s. 252.36 in the area encompassed by the association, may exercise the following powers:
(a) Conduct board meetings, committee meetings, elections, or membership meetings, in whole or in part, by telephone, real-time videoconferencing, or similar real-time electronic or video communication after notice of the meetings and board decisions is provided in as practicable a manner as possible.
(b) Cancel and reschedule an association meeting.
(c) Designate assistant officers who are not directors.
(d) Relocate the association’s principal office or designate an alternative principal office.
(e) Enter into agreements with counties and municipalities to assist counties and municipalities with debris removal.
(f) Implement a disaster or an emergency plan before, during, or following the event for which a state of emergency is declared, which may include, but is not limited to, turning on or shutting off elevators; electricity; water, sewer, or security systems; or air conditioners for association buildings.
(g) Based upon the advice of emergency management officials or public health officials, or upon the advice of licensed professionals retained by or otherwise available to the board, determine any portion of the common areas or facilities unavailable for entry or occupancy by owners or their family members, tenants, guests, agents, or invitees to protect their health, safety, or welfare.
(h) Based upon the advice of emergency management officials or public health officials or upon the advice of licensed professionals retained by or otherwise available to the board, determine whether the common areas or facilities can be safely inhabited, accessed, or occupied.
(i) Mitigate further damage, injury, or contagion, including taking action to contract for the removal of debris and to prevent or mitigate the spread of fungus, including mold or mildew, by removing and disposing of wet drywall, insulation, carpet, cabinetry, or other fixtures on or within the common areas or facilities or sanitizing the common areas or facilities.
(j) Levy special assessments without a vote of the owners.
(k) Without owners’ approval, borrow money and pledge association assets as collateral to fund emergency repairs and carry out the duties of the association if operating funds are insufficient.
As to emergency powers for COAs, Florida Statute 718.1265 states, in summary:
To the extent allowed by law, unless specifically prohibited by the declaration of condominium, the articles, or the bylaws of an association, and consistent with s. 617.0830, the board of administration, in response to damage or injury caused by or anticipated in connection with an emergency, as defined in s. 252.34(4), for which a state of emergency is declared pursuant to s. 252.36 in the locale in which the condominium is located, may exercise the following powers:
(a) Conduct board meetings, committee meetings, elections, and membership meetings, in whole or in part, by telephone, real-time videoconferencing, or similar real-time electronic or video communication with notice given as is practicable.
(b) Cancel and reschedule any association meeting.
(c) Name as assistant officers persons who are not directors.
(d) Relocate the association’s principal office or designate alternative principal offices.
(e) Enter into agreements with local counties and municipalities to assist counties and municipalities with debris removal.
(f) Implement a disaster plan or an emergency plan before, during, or following the event for which a state of emergency is declared which may include, but is not limited to, shutting down or off elevators; electricity; water, sewer, or security systems; or air conditioners.
(g) Based upon advice of emergency management officials or public health officials, or upon the advice of licensed professionals retained by or otherwise available to the board, determine any portion of the condominium property or association property unavailable for entry or occupancy by unit owners, family members, tenants, guests, agents, or invitees to protect the health, safety, or welfare of such persons.
(h) Require the evacuation of the condominium property in the event of a mandatory evacuation order in the locale in which the condominium is located.
(i) Based upon advice of emergency management officials or public health officials, or upon the advice of licensed professionals retained by or otherwise available to the board, determine whether the condominium property, association property, or any portion thereof can be safely inhabited, accessed, or occupied.
(j) Mitigate further damage, injury, or contagion, including taking action to contract for the removal of debris and to prevent or mitigate the spread of fungus or contagion, including, but not limited to, mold or mildew, by removing and disposing of wet drywall, insulation, carpet, cabinetry, or other fixtures on or within the condominium property.
(k) Contract, on behalf of any unit owner or owners, for items or services for which the owners are otherwise individually responsible, but which are necessary to prevent further injury, contagion, or damage to the condominium property or association property.
(l) Regardless of any provision to the contrary and even if such authority does not specifically appear in the declaration of condominium, articles, or bylaws of the association, levy special assessments without a vote of the owners.
(m) Without unit owners’ approval, borrow money and pledge association assets as collateral to fund emergency repairs and carry out the duties of the association when operating funds are insufficient.
Taking a closer look at both of the above statutes, it can be seen that emergency powers may only be exercised to the extent allowed by state and federal law, unless specifically prohibited by the governing documents of the Association. Furthermore, the Board of an Association may only exercise the above emergency powers in response to or in anticipation of an emergency, as defined in s. 252.34(4), for which a state of emergency is declared pursuant to s. 252.36 in the locale in which the Association is located. On the state level, a state of emergency may only be declared by executive order or proclamation of the Governor.
As such, it should be noted that the emergency powers an HOA or COA are limited, and the extent to which an HOA or COA can exercise these powers are always dependent on its governing documents, state law, and the nature of the emergency. Boards should also take into account that any emergency powers utilized by an HOA or COA Board must be exercised in a manner consistent with the board’s fiduciary duty to the community. An Association Board should be careful to balance its obligation to protect and look to the best interests of the community along with the limitations on its authority. A Board that over-extends its powers during an emergency may be viewed as domineering or even tyrannical, and is likely to lose the confidence and support of the community and its members.
However, the above language is not meant to scare Associations into never utilizing its emergency powers. After all, emergency powers were legally granted to HOAs and COAs for a reason – to protect the welfare of the community. HOAs and COAs should use their best discretion along with advice from expert legal counsel to determine what their emergency response should be. For instance, it may be wise for an Association to implement a disaster plan before, during or after an emergency, which could include turning off elevator or electrical systems at a designated time or organizing a volunteer team to help residents with reduced mobility to safely evacuate a disaster zone prior to an emergency. An Association could also conduct an emergency Board or member meeting to discuss a disaster response plan, for example.
In general, when preparing to respond to a disaster or emergency, advice and warnings issued by FEMA or other government agencies are a good place for an Association or Board to start. For instance, if FEMA is advising residents to evacuate, a COA or HOA, although it may lack the power to order homeowners to leave their homes, could use its communication channels, such as their website or social media pages, to spread the word and ensure all members have notice of FEMA’s directives.
The attorneys at The Orlando Law Group represent homeowners and condominium owners as well as HOAs and COAs in Orlando, Waterford Lakes, Altamonte Springs, Winter Garden, Lake Nona, St. Cloud, Kissimmee, and throughout central Florida.
If you are a homeowner, condominium owner, or an Association board member, please reach out to our office at 407-512-4394, fill out our online contact form or save this information in case you ever find yourself or a loved one needing to use it. We provide representation and legal services for both homeowners and Associations alike.
If you have questions about anything discussed in this article or other legal matters, give our office a call at 407-512-4394 or fill out our online contact form to schedule a consultation to discuss your case. We have an office conveniently located at 12301 Lake Underhill Rd, Suite 213, Orlando, FL 32828, as well as offices in Seminole, Osceola and West Orange counties to assist you.
Last Updated on November 26, 2022 by The Orlando Law Group
