Don't let your condo association mismanage money
In general, according to David Caplan, a principal at Community Association Management in Baltimore, reserve funds are intended for and set aside to be used for "reserve items." Those items are derived from what the governing documents of the association say the community is responsible to maintain in perpetuity. From that point of view -- the long-term -- "reserve funds have a finite and specific use," Caplan said.
At the same time, however, the community-association professional points out that communities are living, breathing things.
"As time goes by, both technology and codes change, which may require that improvements be made," he said. "Those improvements are sometimes major systems which must then be incorporated into the reserve funding pattern. And by definition, their initial installation will have to come from reserve funds that were not originally set aside for that specific use. Hence, the reserve fund will pay for the improvement."
But, and this is key, the fund contribution must then be adjusted so that the new expense is absorbed into the funding pattern for the future.
