Owners’ Associations Should Maintain A Reserve

Owners Associations (ASSOCIATION/COA/POA/TOAs) exist to preserve property values and ensure the long‑term functionality and enjoyment of shared community assets. To do that effectively, an association must plan not only for today’s operating expenses but also for tomorrow’s inevitable capital repairs and emergencies, plus your insurance probably requires a 30% reserve. A well‑funded reserve demonstrates responsible governance, protects the board from liability, avoids special assessments, and reassures lenders evaluating the financial health of the community.

Legal and Fiduciary Responsibilities

Board members have a fiduciary duty to act in the best interest of the association including prudent financial planning. Many insurance companies and even states require associations to maintain reserves or at least conduct periodic reserve studies. Even where not mandated, courts and regulators increasingly view inadequate reserves as a breach of fiduciary duty, especially when deferred maintenance leads to safety issues or property damage.

No one likes special assessments and having a 30% reserve can help you avoid the need for special assessments. This makes it easier for owners and the association to budget their money.

How Much Should an Association Keep in Reserve?

There is no universal dollar amount, because every community has different assets, ages, and maintenance cycles. Instead, industry standards focus on percent‑funding—how much of the association’s projected long‑term capital needs are currently funded.

Most reserve specialists recommend:

70%–100% funded: Strong financial health

30%–70% funded: Adequate but vulnerable to unexpected costs

Below 30% funded: High risk of special assessments or deferred maintenance

The Cost of Underfunding

Associations that fail to maintain reserves often face:

-Sudden special assessments

-Increased dues to cover emergency repairs

-Difficulty obtaining loans or insurance

-Lower property values due to visible deterioration

-Potential legal exposure for the board

In contrast, well‑funded reserves stabilize dues, support long‑term planning, and protect the community’s reputation and marketability.

Conclusion

A properly funded reserve is not just a financial best practice—it is a cornerstone of responsible association governance. By maintaining adequate reserves and conducting regular reserve studies, associations safeguard their infrastructure, protect homeowners from financial shocks, and ensure the community remains a desirable place to live for decades to come.