Legal News You Can Use: 2025 - 2026 Community Association Legislative Update

NEW STATUTORY AMENDMENTS

Reserve Funds (Section 718.112 of the Florida Statutes)

In addition to covering annual operating expenses, an association’s budget must include separate reserve accounts for capital expenditures and deferred maintenance. These reserve funds are intended to cover significant repairs or replacements that arise periodically, such as a roof replacement or a structural repair. The purpose of reserve funds is to ensure that the association has sufficient money available when major repairs or replacements are needed, thereby avoiding the need to impose large, unexpected special assessments on unit owners. The required funding levels for these reserves are generally based on the association’s most recent SIRS.

New legislation enacted this year introduces the following changes to the procedures and requirements governing an association’s reserve funds: » The budget must include reserve accounts for any item that has a deferred maintenance expense or replacement cost exceeding $25,000, or an inflation-adjusted amount annually determined by the Division of Condominiums, whichever is greater. ▪ Note – Under previous law, reserve accounts were required for items having a cost exceeding $10,000, and there was no adjustment for inflation. This change should help reduce the number of items for which an association is required to collect reserves. » Reserves for SIRS-related items may be funded by regular assessments, special assessments, lines of credit, or loans. A special assessment, a line of credit, or a loan for this purpose requires the approval of a majority vote of the total voting interests of the association. ▪ Note – This new provision creates a special approval process for obtaining alternative funding to pay for SIRS-related items. However, it is unclear whether the legislature intended to make such alternative funding easier or more difficult to obtain. For example, some sets of governing documents permit the association to pass a special assessment or obtain a loan through a board vote alone, while others require approval by a supermajority of the membership. As a result, the impact of this change may vary depending on the specific provisions in each association’s governing documents. » A unit-owner-controlled association that must have a SIRS may secure a line of credit or a loan to fund capital expenses required by a milestone inspection or a SIRS. The line of credit or loan must be sufficient to fund the cumulative amount of any previously waived or unfunded portions of the reserve funding amount required to be funded by statute and by the most recent SIRS. Funding from the line of credit or loan must be immediately available for access by the board to fund required repair, maintenance, or replacement expenses without further approval by the members of the association.

A special assessment, a line of credit, or a loan secured for this purpose and related details must be included in the association’s annual financial statement. ▪ Note – This new provision is somewhat unclear, as it does not specify whether the procedures for obtaining a line of credit or loan to fund these expenses are meant to differ from those outlined in the preceding bullet point. However, a reasonable interpretation is that the board may use the borrowed funds for a milestone inspection or a SIRS, without needing further unit owner input, once the financing has been obtained or approved by the unit owners (as applicable). This is another area that may require clarification through future legislation. Nonetheless, the overarching legislative intent appears to be to ensure associations have a reliable means of readily accessing funding for structural maintenance, and to require clear disclosure of the funding source in their annual financial statements. » The funding procedures outlined above for SIRS related items and milestone inspections do not apply to associations controlled by a developer, an association in which the non-developer unit owners have been in control for less than 1 year, or an association controlled by one or more bulk assignees or bulk buyers. ▪ Note – It is unclear whether, in these cases, the procedures for securing such alternative funding would be controlled by the association’s bylaws or if such alternative funding would be outright prohibited. » For a budget adopted on or before December 31, 2028, if the association has completed a milestone inspection within the previous 2 calendar years, the board, upon the approval of a majority of the total voting interests of the association, may temporarily pause, for a period of no more than 2 consecutive annual budgets, reserve fund contributions or reduce the amount of reserve funding for the purpose of funding repairs recommended by the milestone inspection. An association that has paused reserve contributions in this manner must have a SIRS performed before the continuation

— continued on page 11

KOLawyers.com | 9