Are Condo Reserves Required by Law?


P.D. from New London County writes:

Dear Mister Condo,

Are reserves required by law? If so, what level?

Mister Condo replies:

P.D., it may surprise you to know that there are no laws in our state that specifically require condos or HOAs to contribute money to their Reserve Funds. I am not an attorney so please consider this a friendly opinion only. If you require a legal response, kindly contact a qualified attorney. That being said, the condominium’s governing documents may address the issue. Even if they don’t most associations and boards will come to the conclusion on their own that establishing a Reserve Fund is just common sense and that capital repairs and improvements will become a reality in any community association and the money will be needed to make those repairs and improvements. The Federal Housing Administration (FHA) does have suggestions for condominiums and HOAs that wish to have their mortgages within the association eligible for FHA-backed loans. (FYI – the majority of mortgages are purchased by the FHA these days so it is important to follow their guidelines and maintain certification if a community wants to keep mortgages available to its members.) While the guidelines have fluctuated in recent years, the FHA has suggested that 10% of the common fees be set aside as a contribution to the Reserve Fund. In reality, I think the number needs to be closer to 20% or more based on the information provided in the community’s Reserve Study. Since every community is different there isn’t a “one size fits all” approach to funding the Reserve Fund. For this reason, I recommend that communities either conduct their own Reserve Study or higher a Reserve Specialist so that they have a handle on how much money should be contributed to the Reserve Fund on a regular basis. Hope that helps. All the best!

This just in… for Ask Mister Condo readers outside of Connecticut, CAI has published a very useful infographic detailing Reserve requirements by state. You can check it out here.

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