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Our Clients Ask Us: Reserve Accounts

Question: Our association had a reserve study completed last year by a reserve specialist. The estimated cost to replace/repair common elements currently equates to less than 10% of our operating budget. If we set aside less than 10% of our budget for reserves, are the owners still required to vote to waive the reserve requirement?

Answer: YES. O.R.C. 5311.081 provides that the budgeted amount of the reserves set aside annually for a condominium association must be at least10% of the association’s annual operating budget. Also, the budget adopted must contemplate the repair or replacement of major capital items without the necessity of a special assessment. The Board must look into the future to determine the financial needs for major capital items and plan accordingly. They may determine that the contribution to reserves should be more than 10% of the annual operating budget. But if the Board determines that it may be less than 10%, then a majority of all the owners must approve a contribution of less than 10%.

The purpose of the statute is to avoid the need for a special assessment. Sometimes a Board will ask if they should assess the owners to fully fund the reserve account once the funds are depleted. The association should not intend on fully replenishing a reserve account immediately after depletion. The purpose of the statute is to build up the reserve fund over time, not immediately.

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