CAI-NJ June 2018 (w)

Association Pit-Falls and the RESERVE BUDGET DILEMMA By AJ Meola, FWH Associates, P.A.

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“A healthy reserve fund is crucial to preserve a community’s appearance and overall value...”

C ommunity associations are becoming increasingly popular with more than 65 million Americans inhabiting dwellings in communities with condo- minium associations, homeowners associations, planned communities and cooperative boards. In these commu- nities, each elected board has a fiduciary responsibility, among many others, to make appropriate decisions that will safeguard the community’s well-being in the present and the future. One of these responsibilities is maintaining a healthy reserve fund for major repair and replacement projects to the community’s common elements or common areas. A healthy reserve fund can be defined as a stable reserve account balance that reaches or surpasses the mini- mum industry recommended percent threshold in each year of the reserve study. This threshold is based upon the total replacement and significant repair costs of the community’s common assets, accounting for future construction projects

and. Equitability should also be one of the most critical factors when formulating a future funding plan. Every community is unique with different common ele- ments or common areas, varying community rules and reg- ulations, diverse demographics, and distinct geographic locations. Regardless, they all have one thing in common, deterioration of common elements and common areas are inevitable. A healthy reserve fund is crucial to preserve a community’s appearance and overall value, but sometimes communities find themselves in a pitfall where their reserve funds are just not enough to financially overcome unantici- pated and expensive construction projects. So how do communities get into predicaments where their annual investments fail to cover the cost of expensive construction projects? There are numerous reasons why a board can find themselves in financial hardship, including but not limited to the following:

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