Florida Statutes - Chapter 720

(6) BUDGETS.—

(a) The association shall prepare an annual budget that sets out the annual operating expenses. The budget must reflect the estimated revenues and expenses for that year and the estimated surplus or deficit as of the end of the current year. The budget must set out separately all fees or charges paid for by the association for recreational amenities, whether owned by the association, the developer, or another person. The association shall provide each member with a copy of the annual budget or a written notice that a copy of the budget is available upon request at no charge to the member. The copy must be provided to the member within the time limits set forth in subsection (5).

(b) In addition to annual operating expenses, the budget may include reserve accounts for capital expenditures and deferred maintenance for which the association is responsible. If reserve accounts are not established pursuant to paragraph (d), funding of such reserves is limited to the extent that the governing documents limit increases in assessments, including reserves. If the budget of the association includes reserve accounts established pursuant to paragraph (d), such reserves shall be determined, maintained, and waived in the manner provided in this subsection. Once an association provides for reserve accounts pursuant to paragraph (d), the association shall thereafter determine, maintain, and waive reserves in compliance with this subsection. This section does not preclude the termination of a reserve account established pursuant to this paragraph upon approval of a majority of the total voting interests of the association. Upon such approval, the terminating reserve account shall be removed from the budget.

(c)1. If the budget of the association does not provide for reserve accounts under paragraph (d), or the declaration of covenants, articles, or bylaws do not obligate the developer to create reserves, and the association is responsible for the repair and maintenance of capital improvements that may result in a special assessment if reserves are not provided or not fully funded, each financial report for the preceding fiscal year required by subsection (7) must contain the following statement in conspicuous type:

THE BUDGET OF THE ASSOCIATION DOES NOT PROVIDE FOR FULLY FUNDED RESERVE ACCOUNTS FOR CAPITAL EXPENDITURES AND DEFERRED MAINTENANCE THAT MAY RESULT IN SPECIAL ASSESSMENTS REGARDING THOSE ITEMS. OWNERS MAY ELECT TO PROVIDE FOR FULLY FUNDED RESERVE ACCOUNTS UNDER SECTION 720.303(6), FLORIDA STATUTES, UPON OBTAINING THE APPROVAL OF A MAJORITY OF THE TOTAL VOTING INTERESTS OF THE ASSOCIATION BY VOTE OF THE MEMBERS AT A MEETING OR BY WRITTEN CONSENT.

2. If the budget of the association does provide for funding accounts for deferred expenditures, including, but not limited to, funds for capital expenditures and deferred maintenance, but such accounts are not created or established under paragraph (d), each financial report for the preceding fiscal year required under subsection (7) must also contain the following statement in conspicuous type:

THE BUDGET OF THE ASSOCIATION PROVIDES FOR LIMITED VOLUNTARY DEFERRED EXPENDITURE ACCOUNTS, INCLUDING CAPITAL EXPENDITURES AND DEFERRED MAINTENANCE, SUBJECT TO LIMITS ON FUNDING CONTAINED IN OUR GOVERNING DOCUMENTS. BECAUSE THE OWNERS HAVE NOT ELECTED TO PROVIDE FOR RESERVE ACCOUNTS UNDER SECTION 720.303(6), FLORIDA STATUTES, THESE FUNDS ARE NOT SUBJECT TO THE RESTRICTIONS ON USE OF SUCH FUNDS SET FORTH IN THAT STATUTE, NOR ARE RESERVES CALCULATED IN ACCORDANCE WITH THAT STATUTE.

(d) An association is deemed to have provided for reserve accounts upon the affirmative approval of a majority of the total voting interests of the association. Such approval may be obtained by vote of the members at a duly called meeting of the membership or by the written consent of a majority of the total voting interests of the association. The approval action of the membership must state that reserve accounts shall be provided for in the budget and must designate the components for which the reserve accounts are to be established. Upon approval by the membership, the board of directors shall include the required reserve accounts in the budget in the next fiscal year following the approval and each year thereafter. Once established as provided in this subsection, the reserve accounts must be funded or maintained or have their funding waived in the manner provided in paragraph (f).

(e) The amount to be reserved in any account established shall be computed by means of a formula that is based upon estimated remaining useful life and estimated replacement cost or deferred maintenance expense of each reserve item. The association may adjust replacement reserve assessments annually to take into account any changes in estimates of cost or useful life of a reserve item.

(f) After one or more reserve accounts are established, the membership of the association, upon a majority vote at a meeting at which a quorum is present, may provide for no reserves or less reserves than required by this section. If a meeting of the parcel owners has been called to determine whether to waive or reduce the funding of reserves and such result is not achieved or a quorum is not present, the reserves as included in the budget go into effect. After the turnover, the developer may vote its voting interest to waive or reduce the funding of reserves. Any vote taken pursuant to this subsection to waive or reduce reserves is applicable only to one budget year.

(g) Funding formulas for reserves authorized by this section must be based on a separate analysis of each of the required assets or a pooled analysis of two or more of the required assets.

1. If the association maintains separate reserve accounts for each of the required assets, the amount of the contribution to each reserve account is the sum of the following two calculations:

a. The total amount necessary, if any, to bring a negative component balance to zero.

b. The total estimated deferred maintenance expense or estimated replacement cost of the reserve component less the estimated balance of the reserve component as of the beginning of the period the budget will be in effect. The remainder, if greater than zero, shall be divided by the estimated remaining useful life of the component.

The formula may be adjusted each year for changes in estimates and deferred maintenance performed during the year and may include factors such as inflation and earnings on invested funds.

2. If the association maintains a pooled account of two or more of the required reserve assets, the amount of the contribution to the pooled reserve account as disclosed on the proposed budget may not be less than that required to ensure that the balance on hand at the beginning of the period the budget will go into effect plus the projected annual cash inflows over the remaining estimated useful life of all of the assets that make up the reserve pool are equal to or greater than the projected annual cash outflows over the remaining estimated useful lives of all the assets that make up the reserve pool, based on the current reserve analysis. The projected annual cash inflows may include estimated earnings from investment of principal and accounts receivable minus the allowance for doubtful accounts. The reserve funding formula may not include any type of balloon payments.

(h) Reserve funds and any interest accruing thereon shall remain in the reserve account or accounts and shall be used only for authorized reserve expenditures unless their use for other purposes is approved in advance by a majority vote at a meeting at which a quorum is present. Prior to turnover of control of an association by a developer to parcel owners, the developer-controlled association shall not vote to use reserves for purposes other than those for which they were intended without the approval of a majority of all nondeveloper voting interests voting in person or by limited proxy at a duly called meeting of the association.

(i)1. While a developer is in control of a homeowners’ association, the developer may, but is not required to, include reserves in the budget. If the developer includes reserves in the budget, the developer may determine the amount of reserves included. The developer is not obligated to pay for:

a. Contributions to reserve accounts for capital expenditures and deferred maintenance, as well as any other reserves that the homeowners’ association or the developer may be required to fund pursuant to any state, municipal, county, or other governmental statute or ordinance;

 

 

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Reserves Under the Florida Homeowners’ Association Act (Chapter 720)

Unlike the Condominium Act, the Florida Homeowners’ Association Act does not automatically require an HOA to maintain reserve accounts for specific capital items. Reserves become “statutory” – and therefore subject to the requirements of §720.303(6), Florida Statutes – only if they are:

• Initially established by the developer as statutory reserves, or
• Established or converted to statutory reserves by an affirmative vote of the members, as provided in §720.303(6).

Your declaration, articles, bylaws, and any recorded member votes or board resolutions will help determine whether your association’s reserves are statutory or non-statutory.

 

Statutory Reserves

If the association maintains statutory reserves under §720.303(6), the following generally applies (subject to any more-restrictive provisions in your governing documents):

1. Annual budgeting and waiver / reduction
   • The board must adopt a budget each year that fully funds the statutory reserve categories using the statutory funding formula unless the members vote to waive or reduce funding for that budget year.
   • A membership vote to waive or partially fund statutory reserves is required each year in which the association does not wish to fully fund them.
2. Restricted use of funds
   • Statutory reserve funds may be used only for their intended capital expenditure or deferred-maintenance purposes unless a majority of the total voting interests of the association approve, at a properly noticed meeting, their use for another purpose or reallocation among reserve items.
3. “Borrowing” from statutory reserves
   • Because a “loan” from reserves is effectively using those funds for a different purpose, the board should not borrow from statutory reserves or otherwise use them for non-reserve expenses without the same type of membership approval required to repurpose reserve funds.

 

Non-Statutory (Board-Created) Reserves

An association may also maintain non-statutory or “voluntary” reserves. These are reserve accounts that have not been established as statutory reserves under §720.303(6). In general:

• Non-statutory reserves are created and structured by the board, and their funding and use are governed primarily by the association’s governing documents and board budgeting decisions.
• They are not subject to the statutory requirements on mandatory full funding, annual member votes to waive or reduce funding, or statutory restrictions on use, unless your governing documents impose similar limitations.

Under typical board-controlled, non-statutory reserves (again, subject to any restrictions in your governing documents or applicable local requirements):

1. Funding decisions
   • The board may increase, decrease, suspend, or otherwise adjust contributions to non-statutory reserves through the budget process, without a membership vote.
2. Use of funds
   • The board may use non-statutory reserve funds for any lawful common expense or project it reasonably deems necessary in the best interests of the association, unless the governing documents restrict that use.
3. Transfers / borrowing
   • The board may temporarily transfer or “borrow” funds to or from non-statutory reserve accounts without a membership vote, provided such transfers do not violate the governing documents or other applicable law.

 

Important note: This is a general educational summary and not legal advice. Specific HOAs can have stricter or different requirements in their declaration, articles, bylaws, or prior member votes, so this language should be reviewed and approved by the association’s attorney before being adopted in any official policy or report.