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 association 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!