Understanding the 10 Percent Requirement for Association Reserves

The 2004 amendments to the Ohio Condominium Act placed often confusing and misleading language into the reserve requirement stating “…provided that the amount set aside annually for reserves shall not be less than 10% of the budget for that year…” This language is commonly misunderstood to mean that condominium associations only have to fund reserves at 10% of their budget for any given year. This could not be more wrong and reading it in this manner opens associations up to one of the greatest areas of litigation!

What the law actually states is that the board must adopt a budget that will fund the reserve account in an adequate manner to repair and replace the common elements in the normal course of business without the need for a special assessment AND the annual contribution to the reserve account must be at least 10% of that year’s budget. Often the amount needed to be fully funding the reserve account greatly exceeds the 10% requirement.

The 10% requirement was initially written in order to require condominium developers to properly fund reserve accounts prior to turning the condominium over to owners. Unfortunately, the outcome of the law seems to have only created confusion.

The 10% requirement does not apply to homeowner associations as it was not included in the Planned Community Act when it passed in 2010. However, the remainder of the reserves law does apply so make sure you are funding your reserve account properly.

Condominium and homeowner associations alike should be certain to be fully funding reserves so as to avoid dreaded special assessments.

Jeffrey Kaman

Jeffrey E. Kaman is the Administration Department and Columbus Office Chairs. Jeff earned his law degree from the Cleveland Marshall College of Law, after graduating with honors from Loyola University Chicago with degrees in Honors History and Political Science.

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