Boards of Directors love to have extra money in the bank. Who doesn’t? But the question is…… when is enough enough?
Boards of Directors are required to simply pass a budget that pays the association’s bills. Anything collected, above and beyond what pays the bills is “Common surplus” which means the amount of all receipts or revenues, including assessments, rents, or profits, collected by a condominium association which exceeds common expenses. Florida Statute 718.103. Amazingly, Florida Statute 720, the HOA Statute, does not mention the term “common surplus.”
Each unit owner owns an undivided share of the common surplus. Florida Statute 718.104.
Common surplus is owned by unit owners in the same shares as their ownership interest in the common elements. Florida Statute 718.115.
Florida Statute 718.116 states – in regards to non used special assessment funds : “However, upon completion of such specific purpose or purposes, any excess funds will be considered common surplus, and may, at the discretion of the board, either be returned to the unit owners or applied as a credit toward future assessments.
So, although the statute should be clearer, the intent is that common surplus funds should be either returned to the unit owners or applied as a credit toward future assessments. So, why are many boards doing neither?
Let’s give an example of the problem:
In “We are rich” condominium in Boca Raton there are 100 units. Each unit owner pays $500.00 per month or $6,000.00 per year in assessments. So, the budget is $600,000.00 which equates to $50,000.00 per month in expenses. The owners waive the funding of a reserve account each year. In a few months, it will be time to pass the 2019 budget. Expenses are expected to remain the same. However, the association has $400,000.00 sitting in the bank. Why is that money there? Whose money is it? Can it just sit there? Forever? Can it be moved to a reserve account? But suppose there isn’t a reserve account? Do we continue to ignore this money?
Although this seems like a great problem for an association to have, it still needs to be determined what to do with these funds. The answer is that these funds cannot be ignored. The answer is that these funds are obviously considered “common surplus” and must either be returned to the unit owners or credited against future assessments. Now, nobody is suggesting that all of the $400,000.00 be returned or credited to the owners. GAAP or generally accepted accounting principles would allow the board to keep a few months of expenses on hand. At $50,000.00 per month in expenses, it’s not unreasonable for a board to say that they want an extra $200,000.00 on hand just in case. However, that still leaves an extra $200,000.00 on hand in “We are Rich” condo. That money belongs to the owners. That money must be either returned to the owners or simply credited against the assessments for the upcoming year. For instance, if the board needs $600,000.00 to pay the bills in 2019 and there’s an extra $200,000 in the bank, the owners should only be assessed $400,000 and the extra $200,000 in the bank must be used to pay the association’s bills incurred in 2019. The $500.00 monthly assessment should go down in 2019.
If the statute is not interpreted in such a fashion, then there is absolutely no limit to what a board can do with unit owner funds. Suppose there were several million dollars extra in the operating account? How can anyone argue that the board gets to keep that money and simply do what it wants with it, including simply doing nothing with it? That is not the board’s money, that money belongs to each owner and that money either needs to be returned to the owners or credited against future assessments. And, if you think that some associations don’t have millions in the bank, you would be wrong.