It’s hard for some homeowners to understand why dues are collected, or even increased, when an HOA already has funds held in reserve. However, reserves must be adequate, and a vote not to reserve is likely a vote for a special assessment in the future.
An association must protect its common elements through the proper funding of association reserves. Pre-planning can save money, relieve stress and save time. Adequate reserves help keep a property well maintained, and adds to the safety and security of residents. A lack of planning on the part of condominium associations can create major headaches for everyone involved. Imagine if an association delayed replacing hand railings because of inadequate reserve, and someone fell and was seriously injured.
The common elements of a condominium development are described in the development’s condo documents, which create the legal entity under which the property operates. These legal documents are a constant, and they bind each owner.
These documents describe who is responsible for the maintenance, upkeep, repair and replacement of the various elements of the property. There may also be limited common elements associated with an individual piece of property that is for the exclusive use of the owners of the attached piece of property, yet the association may have the responsibility for the maintenance, repair and/or replacement of these elements. Knowing who is responsible for what is critical.
The State of Hawaii provides specific guidelines on reserves in Hawaii Administrative Rules 16-107-62. If you a Destination Maui Inc. client, we can advise your HOA board on reserve planning.
In complexes where many units are bought for investment, there is often a reluctance to support adequate reserves. These owners may not keep the property as long, and want to minimize expenses while renting the unit out. This is short-sighted. Adequate reserves are needed for proper maintenance and future financial and physical viability of the property.
If you are looking to purchase a home or condo that has a homeowners association, make sure and do your homework and learn about the reserves set aside for common elements. Make sure to ask these questions:
- Does the property have a professional reserve study that is current – within the past two years?
- Have the reserve study recommendation been implemented and, if so, are the reserve balances proper?
- If the balances aren’t there, is there a plan being followed to eventually reach the proper funding levels based on the reserve study?
- Does the board of directors meet at least four times per year?
- Are the minutes sent to the owners on a timely basis?
- Have you read the minutes for the past year? And are there discussions about special assessments, building and/or environmental problems, etc.?
- Have you talked to several people who live in the community on a permanent basis?
- Are there active, standing committees, indicating good community participation?
- Is the manager or managing agent on site or off site?
- Can you interpret a current financial and balance sheet? If not, seek an expert to assist you in this important step.
- What, if any, property will continue to be owned by the developer and/or the managing agent?
- If there is commercial space on the property, are the users paying their fair share of common expenses, and is this spelled out in the governing documents?
Make sure you fully understand the responsibilities and restrictions of living in a common interest property, and ask the right questions to make sure your HOA reserves are adequately funded.