One of the biggest misconceptions about Reserve contributions I hear, even more than “they’re too much” or “we can’t afford them” (which I’ll address in another post), is that they are for the future. I don’t know how I can be any more clear on this matter. Reserve contributions are not for the future. Reserve contributions offset ongoing, day to day, current deterioration.
Life is full of risks. You may be stuck with your current circumstances, but you have surprising power to influence many future risks.
A California client asked a very interesting question. California law (Civil Code 1366.1) specifically limits associations from collecting assessments in excess of the actual costs for which the funds are being collected.
Summer is the time for large maintenance and landscape projects and that means spending the big bucks. Too often, HOA discover that they don’t have the money to cover these large expenses. This usually leaves the association with the choice to either impose a special assessment or get a loan. So what one do you choose?
The Funding Plan is the recommended action plan by which the association provides income to the Reserve Fund to offset anticipated Reserve expenses. Reserve contributions are recommended for the initial year within the context of a 20- or 30-yr plan, the Funding Plan is created based on four distinct principles. Sometimes these four principles all point to one solution, sometimes they have to be balanced against each other in the best interests of the association and its members:
Why not just special assess for Reserve expenses when the expenses occur? It fundamentally boils down to fairness and responsible corporate planning. By nature, Reserve expenses occur unevenly through the years: some years will have minimal Reserve expenses, some years will be especially hit hard.
