Does your association have an established HOA reserve fund policy? 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 associations 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 an HOA 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 associations common areas. Because conditions change from year to year, an associations reserve study should be periodically updated. State laws and/or provisions contained in an associations governing documents may dictate the minimum required periods for updating a reserve study, but the study should always be reevaluated by an associations board of directors annually. Important items to consider in the preparation of a reserve study include:

  1. An identification of each of the common area components that the association is responsible for maintaining.
  2. The materiality of each reserve component and the minimum value of items to be included in the study (items included in the study require the establishment of reserves and items not included are paid for out of operating funds).
  3. The useful life of each component included in the reserve study (items with a useful life of one year or less would typically be included as expenses in an operating budget as opposed to the reserve budget).

Adopting an HOA Reserve Fund Policy.
An HOA reserve fund policy is a policy that is adopted by a homeowners association to manage reserve funds. It encompasses the reserve study that evaluates the associations physical common area components and establishes a sound financial plan for the association to accumulate funds each year that will be available for the proper maintenance, repair and replacement of said components when required. Items that should be covered in a Reserve Fund Policy include:

  1. A plan for the funding of the reserve account(s).
  2. Procedures for the handling of funds that are deposited into and withdrawn from the reserve account(s).
  3. Delineation of capital improvements.
  4. The investment of funds that are in an associations reserve account(s).
  5. The segregation of operating funds and reserve funds.
  6. The maintenance of administrative and financial records pertaining to reserves.
  7. Providing information concerning an associations reserves to its members.
  8. Requirements for updating an associations reserve study.

Conclusion: Adopt an HOA Reserve Fund Policy

An HOA reserve fund policy should be reviewed and formally adopted by an associations board of directors in accordance with any applicable state laws and/or relevant provisions that are contained in the associations governing documents. The below documents that are available for download are samples of a homeowners association Reserve Fund Policy, a Directors’ Resolution Adopting Reserve Fund Policy, and a Directors’ Resolution Adopting Reserve Study.

See: Reserve Fund Policy

The below Reserve Fund Policy is available for download

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See: Directors’ Resolution Adopting Reserve Fund Policy

The below Directors’ Resolution Adopting Reserve Fund Policy is available for download

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See: Directors’ Resolution Adopting Reserve Study

The below Directors’ Resolution Adopting Reserve Study is available for download

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