HOA Reserve Fund Laws: A Beginner’s Guide

HOA Reserve Fund Laws: A Beginner’s Guide

This article provides a brief guide about hoa reserve fund laws. You will find answers to common questions such as: Is a reserve fund required? How can we spend reserve funds? Is there a law requirement for how much should be in the reserve fund account? HOA reserve fund laws vary by state. This article will focus on Arizona HOA reserve fund laws. To view an interactive guide containing general information regarding hoa reserve fund laws in your state click here.

**DISCLAIMER** This information is intended for general educational and informational purposes only; it may not reflect the legislation in your state and may contain errors or omissions. It is not intended to be a substitute for advice from a lawyer.

To begin with, laws and regulations for “Planned Communities” and “Condominiums” are located in Title 33 of the Arizona Revised Statutes and can be viewed in detail by following the link provided. There is no specific statute that requires the funding or regulates the use of hoa reserve funds in Arizona. However, this does not mean that board of directors will not be held accountable for mismanagement of reserve funds.

HOA Reserve Fund Laws (Arizona)

Condominiums

Associations may adopt and amend annual budgets for Revenues, Expenses and Reserves and collect assessments from unit owners for common expenses Section 33-1242. Resale disclosures must include the amount of money held in reserves by the association. The buyer must also receive a copy of the most recent Reserve Study Section 33-1260.

Planned Communities or HOAs

Resale disclosure must include the amount of money held in reserves by the association. Buyer must receive a copy of the most recent Reserve Study Section 33-1806.

Additional Guidelines

Although, the statutes listed above do not provide specific requirements regarding reserve studies, reserve fund levels or reserve fund usage, the following guidelines apply:

  • Good Faith Requirement – Every association is a business and most HOAs are non-profit corporations. Under Section 10-3830, directors of nonprofit organizations are required to discharge duties in good faith, with the care an ordinary prudent person in a like position would exercise under similar circumstances, and in a manner the director reasonably believes to be in the best interests of the corporation.
  • Generally Accepted Accounting Principals – A common interest realty association is expected to maintain and replace common property. Some statutes require a CIRA to accumulate funds for future major repairs and replacements. If provision for replacement of the CIRA’s assets is not made through other means, it is generally desirable to set aside funds periodically to provide for replacement. Some accountants and industry associations believe that periodic accounting should charge the appropriate expense account (Repair and Replacement Reserve) and credit an appropriate balance sheet account (also Repair and Replacement Reserve–part of the Members’ Equity). However, the Task Force stated that a CIRA should not recognize liabilities related to future maintenance of an entity’s assets, regardless of its duties to maintain such property. The members recommended the use of fund accounting as the most informative method of presenting a CIRA’s normal operations and long-term major repair and replacement requirements. It was reasoned that the net assets included in such a presentation would inform users of the amount of resources accumulated for future major repairs and replacements.
  • Community Governing Documents – Refer to your individual governing documents for reserve fund requirements and usage.

Summary

When an association fails to plan for the future by not following a reserve study or worse not conducting a reserve study, it faces two choices – put off needed repairs or special assess unit owners to pay for needed repairs. Both choices will cause discontent. In order to avoid these choices, make sure your association has an updated Reserve Study and follows its recommendations.

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