Statutory vs. Non-Statutory Reserves

Home/Statutory vs. Non-Statutory Reserves

A recent amendment to Florida Statute Section 720.303(6), which became effective on July 1, 2010, clarifies reserve requirements for mandatory homeowners association which are governed under Chapter 720 Florida Statutes. This Statute, as amended, now distinguishes between “statutory reserves” and other types of “voluntary” or “non-statutory” reserves (i.e., those not established by the developer or by vote of the owners.)

Statutory reserve accounts are reserve accounts which have been initially established by the developer or by a majority vote of the entire membership.  Once established, the reserve accounts must be funded unless (1) the majority of the entire membership terminates the reserves; or (2) members waive collection for that year by a majority vote of the members present in person or by proxy at a duly called membership meeting.  Statutory reserves can also be permanently terminated if approved by a majority of the entire membership.  Upon such approval, the terminated reserve account is removed from the budget.  It is important to distinguish the difference between terminating a reserve and waiving the collection of a reserve for a given year.  If the reserve account is terminated, it is not included in the next year’s budget, and cannot be reestablished unless a majority of the total membership votes to do so.  On the other hand, if a reserve account is waived, it must be included in the next year’s budget unless it is again waived by a vote of the membership.

Essentially, under prior law, even if an Association maintained voluntary reserve accounts, the Association’s year-end financial report was required to contain a bold face, conspicuous type disclosure to the effect that reserves were not maintained.  Of course, this made little sense since many Associations were in fact collecting and maintaining non-statutory, voluntary reserves.  Nevertheless, the following disclosure was required to be included on the year-end financial report:

THE BUDGET OF THE ASSOCIATION DOES NOT PROVIDE FOR RESERVE ACCOUNTS FOR CAPITAL EXPENDITURES AND DEFERRED MAINTENANCE THAT MAY RESULT IN SPECIAL ASSESSMENTS. OWNERS MAY ELECT TO PROVIDE FOR RESERVE ACCOUNTS PURSUANT TO 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.

Under the new law, effective July 1, 2010, if non-statutory, voluntary reserves are maintained, a bold face disclosure is still required.  However, the nature of the disclosure has been changed to note that voluntary reserves are being maintained and that these reserves are not subject to the restrictions on use otherwise set forth in the law which apply to “statutory reserves”.  That disclosure is as follows:

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 PURSUANT TO 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.

In summary, it is important that all mandatory homeowners associations governed under Chapter 720, Florida Statutes, now determine what, if any, type of reserve accounts it is required to maintain as different waiver, use and disclosures are now required based on whether the reserve accounts were established pursuant to the statute, or whether they are simply voluntary, non-statutory reserve accounts which the homeowners association has elected to maintain.

Published In: McGladrey eClub News
November 2010

Contributed By:  Christopher J. Shields, Esq., a Florida Bar Board Certified Real Estate lawyer and partner in Pavese Law Firm.

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