1. Condo Reserves Are About Much More Than Money Sitting in the Bank
Every condominium building has major expenses that do not happen every month. Roofs eventually need to be replaced, elevators require significant work, façades need repairs, waterproofing deteriorates, and structural and mechanical systems age.
Reserves are essentially the money a condominium association sets aside over time to prepare for those future expenses. Instead of asking owners for millions of dollars all at once when a major project becomes necessary, the association gradually funds those anticipated costs.
For many years, however, condominium associations in Florida had considerably more flexibility over how much they contributed to certain reserves. Owners could sometimes vote to reduce or waive reserve contributions, often with the understandable objective of keeping monthly association fees lower.
The problem is that keeping fees artificially low does not make the future expense disappear. If a building eventually needs a $5 million repair and the association has not accumulated enough money to pay for it, the owners may suddenly be faced with a very large special assessment.
There is also a more serious concern. When adequate funding is not available, expensive maintenance and repairs can be postponed. Over time, deferred maintenance can become increasingly costly and, depending on the issue, potentially affect the condition and safety of the building.
This is why simply asking, “How much money does the building have in reserves?” does not tell you enough. A building with $2 million in reserves could be in excellent financial condition — or it could be facing $15 million in upcoming work.
2. Florida Changed the Rules After Surfside
The 2021 collapse of Champlain Towers South in Surfside, which took 98 lives, fundamentally changed the conversation around the safety and financial planning of condominium buildings in Florida.
It is important not to oversimplify what happened. The collapse was not simply the result of an association “not having enough reserves.” The federal investigation identified serious issues involving the building’s original structural design and construction, additional loads over time and deterioration including corrosion. But the tragedy became a major catalyst for changes in Florida condominium regulation.
One of the most significant changes was the creation of the Structural Integrity Reserve Study, commonly known as the SIRS. Residential condominium associations subject to the law must complete this study for buildings that are three habitable stories or higher. The study must then generally be repeated at least every ten years.
The SIRS evaluates major building components related to structural integrity and safety, including items such as the roof, structural systems, fire protection, plumbing, electrical systems, waterproofing, exterior painting, windows and exterior doors, as well as certain other significant components.
The objective is not simply to produce a report. The study estimates the remaining useful life of these components, their expected repair or replacement cost and how the association should plan financially for those expenses.
And this is where the law made a fundamental change. For associations subject to the SIRS requirements, owners can no longer simply vote to waive the required reserves for those protected components in the way that could occur previously. The association now has to incorporate those future obligations into its financial planning.
3. What Buyers Should Actually Review Before Purchasing a Condo
This does not mean that every condominium building in Florida must already have 100% of all the money it will need for the next twenty or thirty years sitting in a bank account.
The important question is whether the association has identified its future obligations and has a realistic funding plan to meet them. Current Florida law allows the funding plan, depending on the circumstances, to incorporate regular assessments, special assessments, loans or lines of credit.
That is why, when I analyze a condominium for a buyer, I do not want to see only the current reserve balance. I want to understand what that number represents in relation to what the building actually needs.
I want to know what the reserve study identifies, which major projects are approaching, how much they are expected to cost, whether special assessments have already been approved, whether the association has borrowed money and how future obligations are expected to be funded.
The association’s overall financial condition matters as well. Monthly fees, insurance, owner delinquencies, pending repairs and other financial commitments can all affect both the cost of owning the property and, in some cases, the ability of a buyer to finance it.
Two buildings can therefore have exactly the same amount of money in reserves and represent completely different levels of financial risk. The number itself is not the answer. The relationship between the reserves, the condition of the building and its future obligations is what really matters.
Closing Thought
When buying a condo, you are not only buying the unit you can see.
You are also buying into the financial decisions, obligations and future needs of the entire building.
Understanding the reserves — and what sits behind that number — can be just as important as analyzing the price, the view or the condition of the apartment.
