Budget the reserve contribution your most recent study recommends and deposit it by the last day of each fiscal year. After an initial study you have five fiscal years to reach that level. Falling short needs a two-thirds board vote finding hardship.
The core rule
For condominiums (Real Property 11-109.2) and HOAs (11B-112.2), the reserves in the annual budget must be the funding amount recommended in the most recent reserve study, subject to the board's funding plan, and must be deposited in the reserve account on or before the last day of each fiscal year. Co-ops follow the same pattern under 5-6B-26.1. The board must also review the reserves and the study every year to check that funding is adequate.
The five-year climb
When the most recent study is an initial one, the board must reach the recommended annual contribution within five fiscal years following the fiscal year in which that study was completed. House Bill 292, effective October 1, 2025, lengthened that window from three years. Five years is a ceiling, not a target: a community that can close the gap sooner usually should, because costs keep moving while it waits.
The funding plan
With input from the person who prepared the study, the board adopts a plan to fund the reserves and picks one method:
- Component (sometimes called full funding): each item is funded on its own schedule.
- Cash flow: contributions are set so the pooled balance never runs short.
- Baseline funding: the balance is kept above zero in every year of the projection.
- Threshold cash flow: the balance is kept above a floor the board chooses.
- Another method consistent with generally accepted accounting principles.
The plan must put health, safety and well-being first, then structural integrity (a roof, for example), then essential systems such as plumbing, sewer, heating, cooling and electrical. The board reviews progress on the plan at each annual meeting. Reserve money spent on anything else must be paid back within five years.
A hard year
If the association and its owners are in financial hardship, the board may say so by a two-thirds vote, at a regular or special meeting with reasonable advance notice to owners. It may then fund below the recommended level for one fiscal year, and renew that once by another two-thirds vote. Even then, funding must cover the plan's priority items, and the board must make and document good-faith efforts to get back to full funding.
Raising assessments
HB 107 lets the board raise reserve assessments even where the governing documents limit increases. For HOAs, a separate rule in 11B-112.2(f) says an expenditure that would push the current year's assessments more than 15 percent above the adopted budget needs a budget amendment at a special meeting with at least 10 days' notice, unless it addresses a threat to health or safety or a significant risk of damage. Condominium boards should check 11-109.2 and their bylaws with counsel.
Telling owners
Where a study shows reserves are needed, the proposed budget sent to owners must show the components' replacement cost and remaining life, the reserve balance at the start of the year, the planned contribution and how the figures were worked out, alongside a summary of the study itself.