Error of Omission?

Q Our association recently had to replace a pool safety cover. It was 14 years old and just could not be patched anymore. We got quotes for the cover and selected a vendor. Thinking this replacement would be funded from the reserve funds, we ordered the cover. A resident, at a meeting, said that we could not use reserve funds as the pool cover was not included in the engineering study. Upon looking at the study we found the cover had been omitted in error. Everything else was included in the report, pump, filters, heater etc. There is more than enough funding in the operating account as well as in the reserve account to cover the cost. Is the board allowed to use the reserve funds even though the cover was not mentioned in the report? Must we get a new study done just to include the cover? Thank you for your assistance.

— Deep Cover

A “The legal requirements relating to the establishment of reserves and use of reserves by community associations can be complicated,” notes senior attorney Douglas G. Christy with the law firm of Becker & Poliakoff’s Tampa office.

In the context of a condominium association, the reserves are required to be established for certain components and facilities in a condominium and maintained by law unless properly waived or reduced by the membership. The use of reserves in a condominium association is limited to only the authorized reserve expenditures unless the use for other purposes is approved in advance by a majority vote at a duly called meeting of the association pursuant to Section 718.112(2)(f), Fla. Stat. In the context of a homeowners’ association, reserves may be subject to Section 720.303(6), Fla. Stat., if the reserves were initially established by the developer or by a vote of the membership, or may be what is commonly referred to as ‘non-statutory’ reserves, which would apply to any reserves that were established in some manner other than as provided by Section 720.303(6), Fla. Stat. or prior to the enactment of Section 720.303(6), Fla. Stat. When the reserves were established by law pursuant to Section 720.303(6), Fla. Stat., the use of the funds would be limited in the same manner as is it is for a condominium association. When the reserves were ‘non-statutory’ in nature, how they are used may be in the discretion of the board of directors unless otherwise provided in the governing documents of the homeowners’ association.

“Neither Section 718.112(2)(f), Fla. Stat. nor Section 720.303(6), Fla. Stat. necessarily tie the establishment or use of reserves to an engineering study or a reserve study. However and as a practical matter, it would be tremendously difficult for an association to claim it is properly funding or calculating the required reserves if it does not undertake some type of reserve study in relation to the property the association owns or is responsible for maintaining, repair and replacing, from time to time.

“Therefore and in the case of reserves pursuant to either Section 718.112(2)(f), Fla. Stat. nor Section 720.303(6), Fla. Stat., there may not be a strong basis for the board to use any reserve funds for the pool safety cover, especially if the reserves were clearly and exclusively funded on the basis of the figures in the engineering study. If the reserves are considered to be ‘non-statutory’ in nature, then the board of directors may have significant discretion in how the reserves are used.

“Correcting the error in the engineering study and amending the budget to correctly identify the pool safety cover as part of the reserves may help potentially address this error. Yet another way to address this error and use the reserve funds for the pool safety cover would be to consider having the membership vote to approve of the use of the reserve funds for the pool safety cover in the manner required by Section 718.112(2)(f), Fla. Stat. or Section 720.303(6), Fla. Stat., as may be applicable. If the pool safety cover is not an item that the association is required to include in its budget as part of the reserves, then the association may be able to use its operating budget funds to address the costs of the pool safety cover rather than addressing it as a reserve expense or reserve asset. In any case and before the reserve funds are potentially spent in relation to the pool safety cover, the association should consult with its attorney to evaluate and help guide the association with this issue.”