Maintenance, repair and upgrade of the common areas of a community can be costly, and reserve accounts can be a great planning tool for large projects. In 2007, Section 720.303(6) of the Florida Statutes was added to the Florida HOA Act establishing procedures and rules related to reserves if a) they were originally established by the developer prior to turnover; or b) a majority of the homeowners voting to establish specific reserves.
Local governments are now requiring reserves for gated communities. Orange County, as well as cities such as Winter Garden and Ocoee, require developers to fund reserve accounts for the gated communities that are developed within those jurisdictions. This is because gated communities have private roads and sidewalks, which are the maintenance responsibility of the HOA, and not the local government. Repairing or replacing this infrastructure can be pricey, and a community that has failed to plan for these costs could find itself in a predicament that only a huge special assessment could rectify.
Locally-required reserve funds include funds for roads, sidewalks, drainage areas, storm-debris cleanup, and similar anticipated expenses, and vary as to the amount that must be funded. In the case of roads, typically the largest reserve fund, 1/12 of the total amount needed to resurface the community must be put into reserves every year.
Annual deposits into reserve funds must begin upon receipt by the community of its “certificate of completion”, which is very early in the development of a community. In at least one locality, Orange County, developers must “superfund” the reserve accounts by placing a full year of funds into the association’s reserves prior to turnover.
Many communities that have turned over discover that their developer did not adequately fund the association’s reserve accounts, either by paying too little into the reserve accounts, or by attempting to “waive” the funding of reserves prior to turnover. An Orange County Circuit Court Judge recently ruled that a developer may not “waive” the funding of these mandatory reserve accounts prior to turnover.
The Fifth District Court of Appeal, in the case of Meritage Homes of Florida, Inc. v. Lake Roberts Landing Homeowners Ass’n, Inc, 2016 WL 830440 (Fla. 5th DCA 2016), affirmed that decision, and further held that a) once a developer establishes a reserve account, the reserves must be fully funded each year, unless reserves are waived or reduced at a member meeting (a board meeting will not do); and b) the developer may not vote its interests at the member meeting – only the non-developer owners may vote.
Further, a shortchanged HOA is able to recoup the attorneys’ fees and costs expended, should they prevail in an action against a developer.
An HOA that believes it has been shortchanged should immediately contact its community association law firm for advice.
Patrick C. Howell concentrates his practice in the area of community association law providing a variety of legal services to condominium, homeowner, cooperative and timeshare associations, with particular emphasis on construction litigation and specifically, construction defects litigation.
Originally posted in Florida Condo HOA Blog