Mandatory Reserves Are Here to Stay

By Jane Bolin, Esq. / Published December 2022

A well-known former business consultant, Peter Drucker, famously said, “The best way to predict the future is to create it.” For most Florida community associations, it feels quite the opposite. The future is predicated on the decisions of the Florida State legislature and the governor’s office, especially when considering the new requirements of law due to SB 4-D. 

     After the tragic collapse of the Surfside Condominium in Miami, many communities, residents, municipalities, and lawmakers have contemplated a future where this never happens again. The result from our Florida state government has been the creation of new milestone inspections and structural integrity reserve studies along with mandatory reserves for condominiums throughout the state. No doubt there will be modifications to the new law (glitch bills), and many proposed changes will be considered in the 2023 legislative session; however, the underlying intent of the law will most likely not change. Mandatory reserves are here to stay. 

     The purpose of this article is to share some practical advice for board members and managers to handle the impact of increased costs and larger budgets. I do not know any board members who want to pass special assessments to unit owners and move on. We know the result of that will be that many will not be able to afford the increased costs, which will leave them in the collections process and ultimately out of their homes. No one wants this result. Let’s look at ways to handle the inevitable increase in costs to community associations. 

Photo by iStockphoto.com/Bet_Noire

Annual Budget Again, Now

     Although the budget process is considered an annual and Florida statutory requirement, I always say that a budget is a living document. Association boards may notice a budget meeting and revisit a budget at any time. Why do that now? If a board provides a gradual increase to the cost of regular maintenance payments, then the impact is not as painful as receiving a large increase at one time. Although the board may not know the exact amount of increased costs, based on discussions with many engineers and architects, a milestone inspection may run from $5k–$10k. Plan for it now. 

Review of Operating Expenses 

     When faced with increased costs, every business (especially a not-for-profit association) must review their operating expenses. Generally, associations do this during the budget cycle by bidding out contracts and reviewing vendor prices. That work takes time, and time is money. In light of SB 4-D, I suggest that boards keep in mind that ultimately the purpose of a common interest community is to protect and preserve the common elements; therefore, a board may want to consider community parties, clubs, or other social functions as luxury items. (Note: all associations should run any change in the budget past their legal counsel to ensure they are not depriving an owner of a common element as defined in their declaration of covenants and restrictions.) If a board does stop social operations, do create a date to revisit the decision. 

Collections Process & Loans 

     The time to create a banking relationship is now. Don’t wait until the association needs a loan. Contact your association banker and find out what options are available.

     If an association board wants to seek a loan to fund needed repairs/replacements and supplement reserve accounts, all banking institutions will review the accounts receivable and may have a policy as to how many units in the collections process is too many. Consider revisiting the collection policy to help your unit owners create payment plans and get them up to date. The board may adopt a new payment plan policy or consider meeting with owners individually to create a win-win scenario. 

Deal with What Is Happening 

     Don’t bury your head in the sand. Savvy association boards will stay on top of the potential updates to the law and discuss and debate options to meet the financial needs of the association. Talk to your attorney, CPA, and management. Hope is not a strategy.

Jane Bolin, Esq.

Owner, PeytonBolin

     PeytonBolin PL is a real estate and community association law firm that is approachable, reliable, and effective. The firm’s founder, Jane Bolin, was a licensed CAM and owner/operator of a community association management company prior to her legal career. The PeytonBolin team gets to the root of issues and creates good governance structures to help managers, boards, and unit owners alike. Our innovative billing structures help associations achieve their goals while being mindful of their budget. For more information on PeytonBolin PL, call (877) 739-8662, visit www.peytonbolin.com, or email info@peytonbolin.com.