C.G. from Bristol County, Massachusetts writes:
Dear Mister Condo,
I thought the Reserve was the balance left in the bank account. Can you please explain the difference?
Mister Condo replies:
C.G., the balance left in the bank account is just that – the balance. A Reserve Fund is an entirely separate account or accounts where money is deposited at planned intervals to pay for repairs and routine maintenance that occurs over time. For instance, if the association had roads that need repaving every 10 years, the Reserve Fund should look at the likely cost to repave the roads in 10 years and save that money in the 10 years leading up to the repaving. If the repaving will cost $50,000, the association should put aside $5,000 every year just for that purpose. The same is true for each and every common element that the association owns. When you add all of these items up, you have the Reserve Fund. It is not uncommon for associations to set aside 10% or much more of the monthly common fees as Reserve Fund contributions. Over time, the Reserve should grow quite large so that there is money in the account when the time comes for the capital repairs for which the money was saved. If your association is counting on the balance left in the bank account to pay for these large expenses, your association is heading for dire financial consequences. I certainly hope that is not the case. All the best!