Reserve studies are an essential tool for community associations, offering a roadmap to ensure that physical assets are maintained and repaired as needed. However, as community associations evolve, it becomes increasingly crucial to consider not only the tangible, physical components but also the intangible items that can significantly impact an association’s financial health. In this article, we will explore the importance of including intangible items such as insurance deductibles, legal reserves, hurricane reserves, general contingency reserves, landscaping reserves, and ADA reserves for upgrades in your comprehensive reserve study.
1. Insurance Deductibles: Protecting Against the Unexpected
Community associations typically carry insurance to safeguard against unforeseen circumstances, such as property damage or liability claims. While your reserve study focuses on planned maintenance and replacement costs, it’s equally important to account for insurance deductibles that may be required in the event of a claim. These deductibles are unplanned expenses that an association must be financially prepared to cover. By including them in your reserve study, you ensure the association has funds for these unexpected costs, preventing them from eroding your financial stability.
2. Legal Reserves: Guarding Against Legal Challenges
Legal issues can arise in any community association, from disputes with residents to complex legal matters. To address these issues, it’s wise to establish legal reserves as part of your overall financial planning. These reserves are intended to cover legal fees, settlements, or judgments that may arise. By incorporating legal reserves into your reserve study, you mitigate the financial strain caused by legal challenges, promoting greater financial stability.
3. Hurricane Reserves: Preparing for Natural Disasters
For associations in regions prone to hurricanes or other natural disasters, it’s essential to account for potential damage and repairs in your reserve study. Hurricane reserves, specifically earmarked for storm-related damage, ensure that your association is adequately prepared to cover the costs of cleanup and repairs following a severe weather event. This proactive approach helps protect your association from financial turmoil in the face of nature’s unpredictability.
4. General Contingency Reserve: A Safety Net for the Unexpected
General contingency reserves serve as a catch-all for unexpected expenses that may not fit neatly into any specific category. These reserves provide a financial safety net to handle unforeseen circumstances or emergencies, whether they are related to the property’s physical components or other aspects of association life. By incorporating general contingency reserves into your reserve study, you provide financial flexibility to address various unanticipated needs.
5. Landscaping Reserves: Maintaining Curb Appeal
Well-maintained landscaping enhances an association’s aesthetics and property values. To ensure that your community remains visually appealing, it’s essential to account for the costs associated with landscaping maintenance and upgrades. Landscaping reserves allow your association to budget for improvements and replacements of trees, plants, irrigation systems, and other elements, thereby preserving the community’s curb appeal.
6. ADA Reserves for Upgrades: Ensuring Accessibility Compliance
The Americans with Disabilities Act (ADA) sets specific requirements for accessibility in common areas and facilities within community associations. To maintain compliance, some associations have included ADA reserves in their reserve study. These funds can be allocated to cover the costs of making necessary upgrades to accommodate individuals with disabilities, ensuring that your association adheres to legal requirements while improving inclusivity.
Conclusion
Reserves can go beyond merely accounting for the maintenance and replacement of physical assets. By incorporating intangible items such as insurance deductibles, legal reserves, hurricane reserves, general contingency reserves, landscaping reserves, and ADA reserves for upgrades, community associations can create a more comprehensive and resilient financial plan. A thorough reserve study takes into account both the expected and the unexpected, offering financial stability and peace of mind to associations and their residents.
