We’re approaching the time of year when Boards are starting to prepare the budget for the following fiscal year. As we all know, in a condominium, the budget must show fully funded reserves, and the owners then have the option of waiving or reducing the funding of reserves. In an HOA, the budget can include reserves but same is not mandatory unless the owners previously voted to fund a reserve account or the developer required same.
As we should also know by now, reserve funds can only be used for the purposes for which they were intended, unless a vote of the unit owners authorize expenditures for a different purpose. Occasionally however, a Board may use the reserve funds for certain repairs, thinking that these funds are available for this particular use, when in reality, they are violating the statute. For example, the Board is presented with the need to replace the carpeting on all of the common elements. The Board believes that the funds in the reserve account can be used for such a repair. If however, funds for new carpeting were never being reserved in the first place, it would be illegal for the Board to use the reserve account funds. Only if a carpeting reserve was previously being funded could the Board dip into the reserve account for funds to purchase new carpeting.
Suppose the Board made this error in good faith? What should be the remedy? Sometimes, irate unit owners want the Board members to individually replace those reserve funds from their own monies. That won’t happen. Individual liability against a director is rare and is almost exclusively found when that Board member stole association funds and/or acted solely in their own personal interest. The same irate owner(s) will usually file a complaint with the DBPR and an investigator will issue a letter to the association that either requires the association to put back the monies in the reserve account or obtain a vote of the unit owners to use those reserve funds that have already been taken. If the association does not have enough funds in its operating account to replenish the reserve account, the association will be required to pass a special assessment; just like they needed to do in the first place.