QUESTION: I'm on our condo board and the question about how to deal with the diminishing value of our reserve funds has come up. Interest rates are very low and the real value of our funds is declining over time.
One of the board members has experience investing in the stock market where he believes we will have a better return but putting our reserves into stocks seems risky to me. He says we should be able to invest our reserve funds in any legal investment and that there are no rules against putting the money into stocks. Are there guidelines about what we can do with the money? I'd guess that most of our unit owners don't even know we have reserve funds that we could invest.
ANSWER: There are some important guidelines in Section 716.112 of the Florida Statutes. This statute requires that a proposed annual budget include estimated reserves and operation expenses. The budget must include reserve accounts for capital expenditures and maintenance which, at the very least, must include roof replacement, painting and pavement resurfacing. It must include an account for anything that has a deferred maintenance cost of over $10,000. The money from these accounts can be co-mingled for investment purposes but a reserve account may only be used for authorized reserve expenditures unless an expenditure is pre-approved by a majority vote at a meeting of the association's membership.
The members of the Board of Directors of a condominium association are governed by the Florida Not-For-Profit Corporation Act and the Condominium Act requiring that officers and directors of condominium associations discharge their duties in good faith. An officer or director may be liable for money damages if he or she breaches or fails to perform his or her duties and such failure constitutes a violation of criminal law. They are also liable if they do something that results in improper personal benefit or which was reckless, in bad faith, with malicious purpose or exhibiting wanton and willful disregard of human rights, safety or property.
There is no mention in the statutes about what investments are permitted. Most associations stay with money market accounts and Certificates of Deposit because the stock market is risky. Boards avoid investing in stocks to minimize potential accusations about being reckless or, if the person on the board receives a fee for investing the associations funds in stocks, the accusation of improper personal benefit.
Seek the advice of an attorney who understands what constitutes acceptable investment practices for your board of directors.
Attorney Sylvia Heldreth is a certified specialist in real estate law. Her office is located at 1215 Miramar St., in Cape Coral.
This article is not intended as specific legal advice to anyone and is based upon facts that change from time to time. Individuals should seek legal counsel before acting upon any matter involving the law.