Condominium reserves and the post-Surfside regime

Reserves are the second budget

Every community association runs two budgets, and buyers are usually shown only one.

The operating budget pays the recurring annual cost of running the building: utilities, insurance premiums, management, landscaping, routine maintenance, administration. It is the budget the association balances every year, and the one a monthly assessment obviously funds.

The reserve fund pays for something different: the periodic replacement of major common-area components that wear out on a multi-year cycle. Roofs. Elevators. Paving. Exterior painting. Mechanical plant. The building envelope. These do not fail annually, so they do not appear in an annual budget as a cost — right up until the year they do, at which point the sum involved is not something a monthly assessment absorbs.

A reserve study connects the two. It answers what major components the association will have to repair or replace and when, and how much it should be setting aside now so the money is there then. Under the National Reserve Study Standards published by the Community Associations Institute, a component generally belongs in the study if the association is responsible for maintaining it, it has a limited and predictable remaining life, and its replacement cost is above a minimum the association sets.

Underneath sits a fairness argument that explains why reserves exist at all. A roof installed in 2005 and replaced in 2030 was consumed by everyone who lived under it for twenty-five years, and reserve funding makes each of them pay for the share they used. Without it the whole cost lands on whoever owns in 2030 — often a buyer who arrived in 2029 and was told the association had no debts.

Why an association that looks solvent can be badly underfunded

Operating solvency and reserve adequacy are separate tests, and the first tells you almost nothing about the second. An association can be current on every invoice, carrying no debt, running a small annual surplus, and simultaneously be years behind on the money it should be accumulating.

The measure that exposes it is percent funded: the actual reserve balance divided by the fully funded balance, which is the sum, across every component, of the fraction of its life already consumed multiplied by its current replacement cost. A roof with a twenty-year life and fifteen years remaining has consumed a quarter of its life, so it contributes a quarter of its replacement cost to the total the association ought to hold. Repeat for every component and compare the result against the cash.

Three mechanisms produce a low figure without anything looking wrong at the time:

• Waiver. In much of the United States owners can vote to fund reserves partially or not at all. A state can mandate a study and still permit owners to fund nothing from it, and historically that was the norm. Every waived year is a cost moved forward, not removed.
• Baseline funding. A plan whose only target is keeping the balance above zero is legitimate and often compliant. It also holds no cushion by design, so any component that fails earlier or costs more than projected has to be met by an assessment or by borrowing.
• Stale data. The denominator is built from component lives and replacement costs. A study updated repeatedly without anyone visiting the property carries forward old costs, understating the denominator and flattering the percentage. The number drifts up while the building drifts down.

Hence the structural point that organises the whole subject: a special assessment is the settlement of an underfunding that already existed. An inspection or a study does not create the liability. It discloses it.

It is equally worth saying that most associations are not in that position, and that underfunding is not misconduct. Across most of the country there is no legally required reserve funding level at all, and a moderate percent funded with a credible plan and a recent site visit is ordinary and unalarming. The great majority of associations sit there.

What changed after 2021, and why

Before June 2021, reserve regulation in the United States was a quiet corner of state property law. The American Bar Association's Construction Lawyer (Summer 2025) records the baseline: as of October 2021, only nine states mandated reserve studies for community associations, and no state mandated building inspections at all.

The partial collapse of a residential condominium building in Surfside, Florida in June 2021 ended that. Florida legislated the first regime in the country combining mandatory periodic structural inspection of ageing residential condominium and cooperative buildings with a mandatory, non-waivable reserve study for structural components, and every state to legislate since has borrowed from that template. The sequence, precisely:

• SB 4-D, effective 26 May 2022 created both instruments — the milestone inspection at Fla. Stat. §553.899 and the Structural Integrity Reserve Study at §718.112(2)(g).
• SB 154, signed and effective 9 June 2023 deleted the blanket rule requiring inspection at 25 years for buildings within three miles of a coastline. The trigger became 30 years statewide, with the local enforcement agency permitted to require 25 where local circumstances such as proximity to salt water warrant it. Content still repeating the three-mile coastal rule is more than three years out of date.
• HB 1021, effective 1 July 2024 exempted four-family dwellings of three or fewer habitable stories and imposed 45-day deadlines for distributing a completed study to owners and notifying the Division.
• HB 913, effective 1 July 2025 is the bill people mean when they search for reserve fund relief. It extended deadlines, raised the reserve item threshold and introduced funding flexibility — but it did not make structural reserves waivable.
• The 2026 regular session enacted nothing. CS/SB 1498 died in the Appropriations Committee on Agriculture, Environment and General Government on 13 March 2026, and its House companion died in Rules the same day.

Outside Florida, New Jersey's structural integrity legislation took effect on 8 January 2024, pairing structural inspection with a reserve study and funding obligation. California's regime predates all of it and is different in kind: Civil Code §5551 targets exterior elevated elements — decks, balconies, stairways and walkways more than six feet above ground and substantially supported by wood — rather than the whole building, with a first-inspection deadline of 1 January 2025 and a nine-year cycle after. One correction worth carrying: AB 2579 (2024) extended the deadline under SB 721, the parallel requirement for rental buildings, to 1 January 2026. It did not move SB 326's 1 January 2025 deadline. Secondary coverage conflates the two constantly.

The two documents, and why they answer different questions

A structural or milestone inspection is a condition investigation performed by a licensed engineer or architect. Its first phase is visual, but its second phase can open walls, sound concrete, core and test until the engineer understands what is happening. It answers what is wrong with this building.

A reserve study is a funding instrument. Florida's structural study is explicit about this: the statute states it is based on a visual inspection of the property. It does not open, sound, core or test. Where a component's condition cannot be determined by looking — plumbing inside walls, reinforcement inside concrete, wet insulation inside a roof assembly — the study carries a planning allowance, not a measured requirement. It answers whether the association can pay for what is wrong.

Read separately, each misleads. An association with a clean inspection and a depleted reserve is not in good shape; an association with a documented finding and a well-funded reserve is in considerably better shape than its report suggests. The pairing, not either document alone, is what a buyer should be looking at.

Reserve rules are a state-by-state patchwork

There is no federal reserve requirement for community associations. Everything is state law, and state law varies along four independent axes that are worth separating because they are commonly collapsed into one:

• Is a study required at all?
• How often — and does the statute require a site visit, or will a paper update satisfy it? These are two different clocks, and only some statutes set both.
• Must the association actually fund what the study recommends, or merely commission it and disclose it?
• Can owners vote to waive or reduce funding — and is any category carved out from that vote?

The third and fourth axes are where the practical difference lies: a mandate to obtain a study, with no funding obligation attached, changes what is on the record without changing what is in the bank.

The Community Associations Institute's published summary identifies California, Colorado, Delaware, Hawaii, Nevada, Oregon, Utah, Virginia and Washington as requiring a study, and Connecticut, Delaware, Florida, Hawaii, Illinois, Massachusetts, Michigan, Minnesota, Nevada, Ohio and Oregon as requiring reserve funding. That list appears not to reflect the 2022 to 2024 wave that added Maryland, New Jersey and Tennessee among others, so treat it as a starting point rather than a current statement, and check the specific state's condominium act rather than any national summary — including this one.

How a buyer should think about all of it

Start from the position that most projects are ordinary, then look for the specific things that are not. Five items characterise an association's reserve position better than any single figure:

• Percent funded, plus the same figure from the two prior studies. A snapshot cannot distinguish 45 percent and rising from 45 percent and falling.
• The funding model and the accounting method. Full, threshold or baseline is how much the plan aims to hold; pooled or straight-line is how the money is accounted for. They are independent, and "pooled" is not a funding level.
• The level of the study — full, update with a site visit, or desk update.
• The date of the last site visit, which is not the date on the report cover.
• The projected reserve balance in the year of the next large scheduled expenditure. That is the number that predicts an assessment, and almost nobody asks for it.

Then know where your own judgement stops. Whether a building's structure is sound is a licensed engineer's determination, not an inference from a reserve study. Whether the declaration puts a component on the association or on individual owners is a lawyer's reading of a recorded document, and it changes who pays. And whether the project is financeable is the lender's project review — a buyer can check FHA project approval on HUD's public lookup, but conventional warrantability cannot be self-verified, because the tool Fannie Mae maintains for it is open to lenders and not the public.

Reserves are not a measure of how well an association is run today; they measure how much of tomorrow's cost has already been paid. A building with a moderate reserve, a recent site visit and a board that has actually looked at its roof is in better shape than one with a flattering percentage produced by a study that has not been near the property in a decade.

Common questions

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