“Condominium Budget Procedures Explained; Part 2” – News-Press
Q: Can you explain how a condominium association’s budget is made and presented? What is the difference between operating expenses and reserves? What are straight-line and pooled methods for reserves? (J.D., via e-mail)
A: In last week’s column, I answered parts of this question by explaining the differences between operating and reserve funds, “pooled” versus “straight line” reserves, and the procedures generally required for condominium budget adoption. Today, I will touch on additional requirements of the budget process, including some substantial changes added to the statute in 2025.
A major change for 2025 involves the concept of an “excess budget.” In cases where the board of directors is empowered to adopt the annual budget (which is by far the most common scenario), if a proposed budget exceeds the prior year’s budget by more than 115%, the board must simultaneously present an “alternate budget” for the owners to consider, that does not include, “discretionary” expenses. An alternate budget requires approval of a majority of all voting interests (unless a different percentage is specified in the bylaws) and, if the alternate budget is not approved by the owners, then the board meets to adopt its originally proposed budget.
The law does not make any effort to define what expenses are “discretionary,” there are very few expenses I can think of that would so qualify. In determining whether the board’s proposed budget exceeds the prior year’s budget by more than 115%, insurance premiums, reserves, and certain other non-recurring expenses are excluded from the calculation.
So, now, each year before adopting its budget, the board must first determine whether it is obligated to call an owners’ meeting to consider an “alternate budget.”
Another big change in the budgeting process involves reserves. There are two sets of rules, one for associations that must have a structural integrity reserve study (“SIRS”) and a different set of rules for those which do not. A SIRS is required for any condominium building that contains 3 or more habitable floors/stories, although one-, two-, three- and four-unit buildings are exempt for buildings with three habitable floors.
For associations that are not required to have a SIRS, the “old rules” apply. Reserves for roofs, painting and paving, along with any other item with a deferred maintenance/replacement cost amount exceeding $25,000.00, must be included in the proposed budget, on a “fully funded” basis, using either the “straight line” or “pooled” method, as explained in last week’s column. However, by a vote of at least a majority of all voting interests, the funding of reserves can be reduced or waived altogether.
For associations that are required to have a SIRS, the rules are decidedly more complicated. The association must have two sets of reserves, “SIRS reserves” and “non-SIRS reserves.” SIRS reserves are required for roofs, building structural components, fire protection, common element plumbing, common element electrical, waterproofing, and exterior doors and windows the association is required to maintain. Non-SIRS reserves would include other items for which reserves are required to be kept but are not on the list of mandatory SIRS items. Elevators and exterior paving would be two examples of non-SIRS reserves.
If the association uses pooled reserves, there must be a “SIRS pool” and a “non-SIRS pool.” Full funding of the SIRS pool cannot be reduced or waived, even with a vote of the owners. The SIRS pool must be funded as part of the budget and included in the monthly/quarterly assessments. However, the owners may vote, again by a majority of all voting interests, to fund SIRS reserves for any given year through a special assessment or loan/line of credit, instead of through the monthly/quarterly “maintenance fees.”
Non-SIRS reserves must also be included in the proposed budget on a “fully funded” basis, but the law does permit their funding to be waived or reduced by the same majority vote. The statute does not offer the special assessment/loan option for funding non-SIRS reserves.
Joe Adams is an attorney with Becker & Poliakoff, P.A., Fort Myers. Send questions to Joe Adams by e-mail to jadams@beckerlawyers.com. Past editions may be viewed at floridacondohoalawblog.com.
