Q & A: Setting Up Reserves

Q “I am the president of our condo association and I am in favor of creating reserves. Over the last 40 some years our residents have voted down the establishment of a reserve. I would like to recommend to the owners a general pool of reserves. Do I first hold a vote on if the owners want a reserve, or must I first conduct a study to establish an estimated cost?”

—Money in the Bank

A “I would recommend that you carefully review your association’s declarations and bylaws,” says attorney Timothy Buckley of the Chicago-based firm Howard & Howard, “to determine whether a reserve is mandated by those documents. If there is a mandate for a reserve fund, then you should confirm that the last vote of the association to dispense with the reserve fund was by a margin required by the declaration and bylaws to amend the terms of those documents.

“If the declaration and bylaws are silent, the Condominium Act requires that every budget adopted after July 1, 1990 by a board of managers provides for reasonable reserves for capital expenditures and deferred maintenance for repair or replacement of the common elements. The Act permits an association to waive the requirements of a reserve by a vote of no less than two-thirds of the total votes of the association. An association can reinstate the requirements of a reserve account only by the same vote of no less than two-thirds of the association.

“With the “anti-reserve” history you describe for your association, I would recommend that you propose a study to be conducted, first, to support your recommendation.

“Capital improvements and repairs for the common elements of the property are inevitable. In the absence of an established reserve, unit owners will be required to carry the burden of a hefty special assessment to pay for replacements or repairs. This will not be popular with most unit owners.

“You can take the first steps by referring to the Association of Professional Reserve Analysts’ website, www.apra-usa.com. You will find the standards that any qualified engineer or other practitioner should adhere to in conducting a reserve study. You can identify qualified practitioners by consulting the Association of Condominium, Townhouse, and Homeowners Associations, (www.actha.org) or the CAI-Illinois chapter (www.cai-illinois.org.)”

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