Maintaining a condominium owner association’s (COA) financial health is challenging without a well-funded reserve. In Texas, jurisdictions are in place to ensure that the association can cover the costs of significant repairs and replacements without imposing sudden, large assessments on unit owners.
COAs managing cash flow may encounter difficulties when members fail to make timely payments. Facilities like elevators and HVAC systems are vital for health and accessibility, so their repairs are crucial. Paying for them may force the association to take out an emergency loan or levy a special assessment.
COAs can create and maintain a reserve fund to avoid resorting to these actions. Texas policy provides clarity on how your association can carry this out.
Critical points of Texas’ condo reserve fund policy
The Texas Property Code outlines state policy on condo reserve funds. Key points of the policy include:
- Providing legal basis: Section 82 of the Texas Property Code allows COAs to collect reserve funds for an unspecified period to cover any anticipated expense.
- Conducting reserve studies: COAs typically conduct reserve studies to determine the appropriate amount for reserve fund contributions. The study assesses the condition and life expectancy of community assets.
- Imposing investment restrictions: The Texas Property Code requires COAs to invest reserve funds in secure, interest-bearing accounts or other authorized investments as stated in the association’s governing documents.
- Preparing financial reports: COAs must provide unit owners with an annual financial report detailing the reserve fund budget and its status.
- Establish consequences for noncompliance: COA board members must act in the association’s best interests. They have a duty of care and loyalty. They face potential legal consequences if they don’t meet those duties due to actions such as misuse of funds.
Your COA has the right to collect funds to operate and protect the community’s investment. Consulting a COA law attorney is advisable if fund-related disputes arise within the association. They can help you defend against legal action and meet legal requirements.