Every Homeowners Association Should Have a Reserve Fund Policy

Does your homeowners association have an established policy to manage reserve funds? Does it have an established financial plan for the accumulation of funds to be available when needed? Associations are managed by directors and management company personnel that change frequently. When the changes take place, the successor board members or management personnel need to have information available to them that lets them know what and why actions were taken by their predecessors. The establishment of policies provides structure and framework for use by successor boards and management personnel and eliminates the necessity of reinventing the wheel when there is a change in the association’s management.  The establishment of proper policies provides associations with consistency that outlives any particular board of directors or management personnel. One such policy that every homeowners association should have is a Reserve Fund Policy.

The Need for a Reserve Study.

The process of adopting a Reserve Fund Policy starts with the preparation of a reserve study by qualified consultants who are retained by the association. Such consultants typically have extensive construction and/or engineering knowledge and experience that provide them with expertise on issues relating to construction and the components that make up an association’s common areas.  Because conditions change from year to year, an association’s reserve study should be periodically updated. State laws and/or provisions contained in an association’s governing documents may dictate the minimum required periods for updating a reserve study, but the study should always be reevaluated by an association’s board of directors annually. Important items to consider in the preparation of a reserve study include: