The purpose of the reserve schedule is to disclose reserve information to members of the association in the annual budget. The reserve schedule lists each reserve item, how much longer it will last (remaining life), how long it will last when new (useful life), and how much it will cost to replace (replacement cost). Also included in the reserve schedule is the fund balance for each item or the fund balance for a pool of reserve items as well as the necessary funding amount in that year for each item or pool of items.
Variations by Type of Association
The number of reserve items listed can be as few as one or two if an association has few common replaceable assets or over 100 if an association has many common assets. For condominiums and co-operatives (Florida Statutes 718 and 719, respectively), these associations must fund for roofing, painting, paving and any other items over $10,000. Associations may choose if they want to fund reserve items that have less than a $10,000 current replacement cost.
The statutes do not specifically say whether the $10,000 is for one item or for the summation of many smaller items. An example might be air conditioning units on a clubhouse, which individually are less than $10,000, but aggregately are more than $10,000. For homeowner associations, Florida Statutes 720 is broader, but generally speaking, once reserves are setup, they must continue to be funded.
It should be noted that all associations have the right to waive reserves or only partially fund reserves by passing a majority of the owners vote.
Pooled or Component Funding
Once the association has figured out their reserve items, they must decide how to fund them. They can use the pooled method or component method. One question I have been asked is can an association use the component method as well as the pooled method (a hybrid method)? Yes. Although this is not a very common way of setting up a reserve schedule, it is an acceptable way to fund reserves.
The main point is that the reserve schedule must list all of the reserve items. So one unconventional way of setting up reserves for a condominium may be to use the component method for roofing and painting and then a pooled schedule for all of the other items.
Rather than fuss over whether to use the pooled or component method, it is more important to place emphasis on getting the proper items on the reserve schedule. Remember, whether you use the pooled or component method, the same reserve items go into the reserve schedule.