Reserve Requirements For Associations

What are reserve funds and what is required by law for condominium associations?

What Are Reserve Funds?

A reserve fund functions as your organization’s savings account. It consists of money your association regularly sets aside so that any major expenditures that may come up in the future can be covered. 

What Are Reserve Funds Used For?

Reserve funds are used for large-scale repairs, future projects, and unexpected expenses. Reserve funds are used specifically for projects, repairs, and renovations related to the entire property - not for individual unit repairs, maintenance, or improvements.

How Are Reserve Funds Different Than Operating Expenses?

Reserve funds are designated for major replacements, repairs, and improvements. Operating expenses are used to pay the day-to-day expenses of the community including maintenance services, security, landscaping, snow removal, management fees, taxes, insurance, and the like.

Are Reserve Funds Required For My Association?

According to recent updates to general laws outlaid by the Commonwealth of Massachusetts (Part II, Title I, Section 183A-10(i)), “all condominiums shall be required to maintain an adequate replacement reserve fund, collected as part of the common expenses and deposited in an account or accounts separate and segregated from operating funds.”

How Much Money Should Our Reserve Fund Have?

There is no legal requirement for a minimum reserve fund in Massachusetts. However, most lenders require that the reserve fund be 10% of the condominium fee income. An Association’s reserves needs can vary based on the needs and condition of the property. 

Who Sets The Reserve Level?
According to the same general law (Part II, Title I, Section 183A-10(m)) after control of the condominium has been transferred to the Association, the Association may by an annual vote of sixty-seven percent modify the reserve fund requirement provided, however, that any such modification may be rescinded at any time by a vote of a majority in beneficial interest of the unit owners.

How Do We Know Our Reserve Fund Balance?

Your property manager in no case less frequently than quarterly, will issue a written report to the trustees or managing board detailing all receipts and expenditures on behalf of the organization, including beginning and ending balances and copies of all relevant bank statements and reconciliations for the replacement reserve fund, and maintain a separate and distinct account for the replacement reserve fund.

Who Manages Our Reserve Fund?

Your property manager will maintain a separate and distinct account or accounts for the replacement reserved fund and any other funds of the organization. Any reserve account of the association shall require all checks to be signed by one member of the governing board or the association in addition to your property manager, unless there is a written agreement that states otherwise.

Our Association Has No Reserves, How Do We Pay For Major Repairs?

If your association reserve fund does not have an adequate amount of money to fund a major repair, renovation, or improvement project, you have a few options: 

  1. Special assessment - this is a fee for capital improvement projects that each unit owner has to pay in addition to the monthly condominium fee. 
  2. Loan - In some instances, an Association may obtain a loan to pay for repairs. The loan payments are the responsibility of the Association and are paid in addition to the owner’s condominium fees.
  3. Delay - if you do not have the funds for the project and there isn’t an urgent need, you might consider postponing it and establishing a budget plan for future consideration.