J.L. from Connecticut writes:
Dear Mister Condo,
What is the average percentage of the annual reserve annual set aside by Connecticut condo associations?
Mister Condo replies:
J.L., great question! Reserve Funds vary by association and there is no such thing as an “average percentage” to set aside because each association is different and each has different needs with regards to how much they own in common elements and how quickly those common elements will wear down and require replacement. A 50-unit association with no amenities will have a much different requirement than a 200-unit association with pools, tennis courts, walking paths, clubhouse, etc… The reason that any association even talks about a percentage-based formula is because the FHA has created standards for condominiums that require a minimum of 10% of the total budget be allocated for Reserves. This has led to many condominium associations simply using the 10% allocation to Reserve Fund formula. That may keep the association eligible for FHA certification but it is a woefully inadequate amount to actually fund the Reserve Fund for most associations. If your association has opted for this method of funding its Reserve Fund, you would be wise to ask them if there is also a Reserve Study in place and if the suggested amount of Reserves is being collected. It has been my experience that most associations in Connecticut require a much higher level of Reserve Fund contribution to properly fund their true Reserve Fund needs. It is not uncommon for the actual required amount to be closer to 25% or even 30% to properly fund the Reserve. Otherwise, there just isn’t enough money available when the inevitable need for Capital Improvements rears its ugly head. That’s when the Board either defers the maintenance (bad idea) or levies a Special Assessment (unpopular, to say the least). Good luck!
2 thoughts on “Average Percentage of Annual Budget Used to Fund Reserves”
I am curious if this is the same in Canadian Condo’s or just those in United States
D.M., I reached out to my friend, Paul Therrien, publisher of Paul’s Condo Corner for an expert Canadain answer. Here’s Paul’s response: “The simple answer as with most everything in the condo world is: “it depends”. In Canada, each province has its own legislation that governs condominiums. To my knowledge, only one province specifies a certain percentage in legislation. The corporation’s governing documents can certainly specify that the reserve is funded at a certain level. In most provinces legislation requires a reserve fund study to be completed or reviewed at certain times ranging from every ten years for small developments (10 units or less) to every three or five years in other cases. A reserve fund study may provide a guide of what yearly contributions should be to keep the fund at the ideal level. While a corporation is not required to fund to the level recommended by the study, it would certainly be unwise for a corporation to keep its reserve too low. If the reserve is too low when faced with unforeseen repairs or replacements, the board may have to impose a special assessment, not a popular move. In conclusion, each condo corporation may have different requirements provided they meet the legislated minimums.”
Paul’s Condo Corner