Q I live in a Florida HOA and we have had reserve accounts for our roofs/painting since our 1986 inception. Approximately $4.00 of every homeowner's maintenance fee goes into the reserve account that we have set up. However, at a recent meeting, our three-member board announced out-of-the-blue that they were discontinuing our reserve funding and that all the money in the reserve fund was being transferred to our operating account. The members at the meeting objected saying that even if this is legal, the three board members cannot do this by themselves; it must be voted on by the whole membership.

Our board insisted that they have the right to do this. My question, though, is this: Is discontinuing reserves and transferring funds to our operating account legal, and, if so, can the three board members do this alone? Do we not get to vote on this?

—Worried in West Palm

A “Presuming the facts are as stated in the inquiry (which may be confirmed by reviewing the minutes of the board meeting), Florida law provides guidance on both issues,” according to Attorney Ben Solomon, a partner with the community law firm of Association Law Group in Miami.

“In short, Florida law prohibits the board from unilaterally discontinuing the funding of reserves (once established) without a membership vote, as well as requires a membership vote in order for the board to use any reserve funds for ordinary operating expenses.

“More specifically, with respect to HOA reserve accounts, Florida Statutes, Section 720.303(6)(d) states that, “An association is deemed to have provided for reserve accounts if reserve accounts have been initially established by the developer or if the membership of the association affirmatively elects to provide for reserves. If reserve accounts are established by the developer, the budget must designate the components for which the reserve accounts may be used. If reserve accounts are not initially provided by the developer, the membership of the association may elect to do so upon the affirmative approval of a majority of the total voting interests of the association.

“Such approval may be obtained by vote of the members at a duly called meeting of the membership or by the written consent of a majority of the total voting interests of the association. The approval action of the membership must state that reserve accounts shall be provided for in the budget and must designate the components for which the reserve accounts are to be established. Upon approval by the membership, the board of directors shall include the required reserve accounts in the budget in the next fiscal year following the approval and each year thereafter. Once established as provided in this subsection, the reserve accounts must be funded or maintained or have their funding waived in the manner provided in paragraph (f).” (emphasis added)

“With respect to waiving or reducing reserves (i.e., discontinuing reserve funds), Florida Statutes, Section 720.303(6)(f) states that: “After one or more reserve accounts are established, the membership of the association, upon a majority vote at a meeting at which a quorum is present, may provide for no reserves or less reserves than required by this section. If a meeting of the unit owners has been called to determine whether to waive or reduce the funding of reserves and such result is not achieved or a quorum is not present, the reserves as included in the budget go into effect. After the turnover, the developer may vote its voting interest to waive or reduce the funding of reserves. Any vote taken pursuant to this subsection to waive or reduce reserves is applicable only to one budget year.” (emphasis added)

“In light of the foregoing, once a reserve account is established for an HOA, such reserve must be included in the budget unless waived by a majority vote at a meeting at which a quorum is present.

“With respect to the second inquiry regarding the use of reserve funds for operating expenses, Florida Statutes, Section 720.303(6)(h) states in relevant part that, “Reserve funds and any interest accruing thereon shall remain in the reserve account or accounts and shall be used only for authorized reserve expenditures unless their use for other purposes is approved in advance by a majority vote at a meeting at which a quorum is present.”

“Based upon the above statutory language, in order for the board of directors to use the association’s reserve funds for operating expenses (i.e., for a purpose other than the purpose for which they were funded) a vote of the membership is also required.

“As such, it appears the reader is correct and the association should consult with its attorney regarding the matter as soon as possible in order to ensure that it fully complies with all legal requirements relating to the funding, waiver and/or use of reserves. To the extent the association requires further advice on this or other legal issues, our firm Association Law Group (ALG) would be pleased to assist.”