The question gets asked all the time. It comes in different forms, but it keeps getting asked. Some ask how often a Reserve Study should be done. Others want to know if there is a rule of thumb for the amount an association should have in reserves? Many ask whether Pennsylvania condominium law requires reserves? And almost all want to know if an association can opt out of maintaining a reserve in favor of assessments as needed. In the association world, “reserves” refers to money that has been set aside for future capital needs. Just about every association has some capital components that are subject wear and tear and will eventually need to be replaced. It might be the roofs on a condominium building, or the mechanical equipment in the clubhouse. Every association is different, and the types of components will different from one community to another, but the concept is that same. It’s the nest egg, or rainy day fund for a community. In a perfect world, an association has the money it needs when it needs it.
In Pennsylvania, there is no formula or rule of thumb. Each association is expected to assess its own needs and make its own budget. State law authorizes associations to budget for expenses, but does not mandate any specific amounts. It is up to each Board to make good business decisions for their community. There are professionals who can assist in developing component lists and projecting future needs, but it is up to the Board to determine how much should be set aside and how it should be used.