In Florida, it is required by law, that in addition to annual operating expenses, budgets must include Reserves for three basic capital expenditures and deferred maintenance accounts: painting, roof and pavement.

These requirements can be waived if the majority of owners decide to do so. Actually, there is proposed legislation that would make mandatory the creation of Reserves.

This urgent shift is due to the terrible impact that hurricanes Katrina & Wilma had over thousands of condominiums that waived the reserves leaving them without the resources to repair their units and the common elements, thus impacting negatively in the standard of living and dropping, in some cases dramatically, the real estate value of the communities affected.

If the creation of reserves is not the preferred contingency method for restitution of assets to its original value, then the option of Special Assessment should be considered.

In either method, it is required an analysis and, preferable, the assistance of a professional, either personal or institutional, to assess the engineering of the replacement as well as the dollar value needed to carry out the projected works.

Experts recommend the identification of those assets with a useful life of up to 30 years; each asset is then evaluated to assess its useful life and its replacement cost. The latter refers to the cost of restoring the asset to its original condition.

Once the replacement and/or maintenance cost has been determined, it is then required to assign a dollar amount to each line item, and total the expected expenditures.

The total expenditures are then allocated on a dollar share distribution basis to each member of the Association, usually based on their share of the property. This is usually referred to as the “funding” of the Reserve.

The Reserves are then used as planned. If the jobs to restore deteriorated assets require a larger amount than what it has been set aside, the Reserves would be short, in which case, either a special assessment, a raise in monthly maintenance fee, financing, or a combination of all these options, would be needed.

This is a checklist to be accomplished in a progressive and proactive community.