HOA reserves under chapter 720

Is your community a chapter 720 HOA?

Chapter 720 covers associations that govern parcels of land under a recorded declaration of covenants: single-family subdivisions, villa and townhome communities, and the master associations above many large developments. If your documents are titled a declaration of condominium, you are under chapter 718 instead; see the condominium page.

Plenty of Florida communities have both. A master HOA under chapter 720 may own the gatehouse, roads and clubhouse while separate condominium associations run the buildings inside it. Each association keeps its own budget and its own reserves, and each needs its own study.

When an HOA has reserves

The budget may include reserve accounts for capital spending and deferred maintenance. Reserves count as established, with the statutory rules attached, in two ways:

• the declaration or other governing documents require them, or
• a majority of the total voting interests approves them, at a meeting or by written consent, naming the components to be reserved for.

After a member vote, the board must include those reserves in the next fiscal year's budget. An association with no reserves has to say so plainly in its financial report.

How the amount is worked out

Once reserves exist, the statute fixes the method: each item's estimated remaining useful life and estimated replacement cost or deferred maintenance expense. The association can adjust the figures each year for changes in cost or life.

Two funding formulas are allowed. One funds every component separately. The other pools two or more components in a single account, provided projected money coming in keeps the balance above what will go out, with no balloon payments.

Neither formula can be done honestly without a component list, a life for each item and a current price for each replacement. That list is what a reserve study produces, which is why HOA boards order one even though no statute requires it.

Waiving reserves

Members can vote at a meeting with a quorum to fund less than the full amount, or nothing. A waiver lasts for one budget year. If the vote fails or there is no quorum, the budgeted reserves stand. Reserve money stays in the reserve account and is spent only on reserve items unless a majority at a quorum meeting approves another use.

A habit of waiving each year tends to end in a special assessment when the roads or the clubhouse roof come due. A study shows the board, in dollars, what each waiver costs later.

What goes in an HOA study in Florida

Typical components: private roads and parking, sidewalks, stormwater ponds and drainage structures, entry gates and walls, the pool and its equipment, the clubhouse roof and HVAC, fencing, lighting, playgrounds, docks or seawalls on lake and canal communities, and irrigation systems. Lake and canal communities in particular should check that water features are counted.

For a sense of fees by size, see what a study costs in Florida.