Green Bananas and Reserves

The elderly man tells his son he’s running out for bananas. He comes back empty handed and his son asks why. The elderly man says, “They were green, so I did not want to risk wasting money incase I’m gone by the time they ripen.”

Unfortunately, some have the same attitude towards reserves. Board members who want to get reelected, elderly board members who will not see the benefit from upkeep and investor board members who know they will be selling out before the roof leaks, can have personal agendas to “kick the can down” the road.

Our livestream this week highlighted the confusion (for some) on what “fiduciary duty” means. In simple terms it means acting in the best interest of the association, not the board members.

(Important: I’m summarizing from my perspective and not offering any form of professional advice. Always seek your own professional advice from licensed professionals.)

But, the tide is turning on reserves. Some owners, insurance companies, banks and governmental agencies have had enough. Board members need to take notice. Litigation against board members who reject their fiduciary duty are on the rise.

While parts of reserves can be complicated the overall concept is not. Everyone knows roofs, roads, elevators and ponds don’t last forever. The board has an obligation to have funds available, put aside in advance for when these items need those repairs.

The board needs to be contributing to the cost of that future 20 year “down the road” roof replacement. It’s unethical and some would argue legally actionable not to do so.

Don’t be afraid of a reserve study. Your industry leaders will help you with the process of which items need action and when. However, you may want to be afraid of not doing one.

– Raymond Dickey