If you have served on a community association board for any length of time, you have probably heard some version of this question:
“Why should we increase assessments for a roof that will not need replaced for another ten years?”
It is an understandable question. Board members are homeowners too, and nobody enjoys discussing assessment increases. But there is an important reality every board should remember.
The roof doesn’t care how it gets funded.
The roof will need replacement whether the association plans for it or not. Roads will eventually need resurfacing. Siding will need replacement. Retention ponds will require maintenance. Clubhouses will age. Mechanical systems will wear out. The expense is coming. The only question is whether the association prepares for it gradually over time or waits until a crisis forces a special assessment.
That is a decision, not an accident. Every year a board adopts a budget, it decides who pays for deterioration that is already happening. Across the 200 communities Eclipse manages in Dayton, Cincinnati, Columbus, and Northern Kentucky, that one decision is what separates the boards who hand their successors a plan from the boards who hand them a bill.
Reserve Funding Is Not About Spending More Money
One of the biggest misconceptions about reserve funding is that it somehow increases the overall cost of maintaining the community. It does not. Reserve funding simply determines when and how owners pay for major repairs and replacements.
A properly funded reserve account allows each owner to contribute their fair share toward the deterioration that occurs while they live in the community. Instead of facing a sudden $5,000 or $10,000 special assessment, owners contribute smaller amounts over time through their regular assessments. Reserve funding also gives the association the opportunity to earn interest on those funds, which helps offset future replacement costs.
When reserves are not adequately funded, the future repair bill does not disappear. It simply gets transferred to future owners.
The Hidden Cost of Underfunding Reserves
Many associations keep assessments artificially low because increasing them is unpopular. Unfortunately, that short-term decision often creates long-term consequences. When reserves are underfunded, associations may face:
- Delayed maintenance projects
- Continued deterioration of major components
- More frequent emergency repairs
- Increased insurance risk
- Greater likelihood of special assessments
- Increased scrutiny from mortgage lenders
- Reduced buyer confidence
- Potential impacts to property values
Deferred maintenance is rarely cheaper than planned maintenance. In fact, it often costs significantly more.
What Ohio and Kentucky Actually Require
Boards are sometimes surprised to learn that reserve funding is not merely a best practice in this region. It is written into statute.
Under the Ohio Condominium Act, ORC 5311.081(A)(1) requires a condominium association to annually adopt an estimated budget that includes “reserves in an amount adequate to repair and replace major capital items in the normal course of operations without the necessity of special assessments.” The Ohio Planned Community Act imposes a materially identical requirement on homeowners associations at ORC 5312.06(A)(1). In both cases the obligation may be waived only if owners exercising not less than a majority of the voting power waive it in writing, annually. A waiver adopted once is not a waiver that carries forward.
Northern Kentucky boards operate under a layered framework instead of a single statute. Every association sits under the Kentucky Nonprofit Corporation Act. Condominiums created before 2011 fall under the Horizontal Property Law, where KRS 381.870 requires co-owners to contribute toward maintaining a replacement reserve fund for the general common elements. Condominiums created after 2011 fall under the Kentucky Condominium Act, where KRS 381.9167 authorizes budgets for revenues, expenditures, and reserves without setting a funding level. Homeowners associations formed on or after June 29, 2023 fall under the Kentucky Planned Community Act, which carries no reserve mandate at all. Our guide to the Northern Kentucky statutory framework walks through which layer applies to which community.
The common thread is worth naming plainly. Where the law requires reserves, it defines adequacy by outcome rather than by dollar amount, and nowhere in either state does the law require a reserve study.
Why Reserve Studies Matter
That raises an obvious question. How can a board know whether reserves are adequate if it does not know what components exist, how long they will last, or what they will cost to replace?
A reserve study provides that roadmap. It helps identify:
- Major capital components
- Estimated remaining useful life
- Projected replacement costs
- Recommended funding levels
- Long-term contribution strategies
Without that information, reserve funding becomes little more than guesswork. And guesswork is a difficult position for a board to defend to its own owners at an annual meeting. If your association already has a study sitting in a drawer, our field guide to reading a reserve study explains how to pull the numbers that matter out of it.
Insurance Companies, Lenders, and Buyers Are Paying Attention
Reserve planning is no longer just an accounting issue.
Insurance carriers are increasingly focused on deferred maintenance and community risk. Mortgage lenders are paying closer attention to association finances. And in 2026 that attention became a specific, dated requirement rather than a general trend.
Under Fannie Mae Lender Letter LL-2026-03, the Limited Review process for established condominium projects was retired for loan applications dated on or after August 3, 2026. Those projects now go through Full Review, which examines the budget, reserves, insurance, delinquency, litigation, assessments, and inspection history. For loan applications dated on or after January 4, 2027, the replacement reserve line in a Full Review budget must equal at least 15 percent of annual budgeted assessment income, up from the prior 10 percent. The baseline funding method, which allowed reserve balances to approach zero, is no longer accepted.
There is an alternative path, and it is the one boards should understand. A lender may rely on a current reserve study in place of the 15 percent formula, provided the association’s budget funds the highest recommended allocation in that study. A reserve study has therefore stopped being a planning document alone. It is now a financing asset. We covered the full slate of changes in our breakdown of the 2026 Fannie Mae and Freddie Mac condo requirements.
Communities that can demonstrate proactive maintenance and responsible reserve funding are viewed more favorably than communities that continually postpone repairs and rely on special assessments. Reserve planning affects insurance costs, financing opportunities, marketability, buyer confidence, and property values. It reaches well past the balance sheet.
The Fiduciary Duty Conversation
Perhaps the most important reason for reserve planning is one that is often overlooked. Board members have fiduciary responsibilities. Among those responsibilities is the duty of care, the obligation to make informed and reasonable decisions that protect the association and its assets.
Major capital components do not fail unexpectedly. Roofs age. Asphalt deteriorates. Buildings require maintenance. When a board knows these expenses are coming and chooses not to prepare for them, it raises an important question. Is the association truly being managed in the best interests of all owners?
The industry learned that lesson at real cost. The reserve study record at Champlain Towers South showed a board that had the information in hand and struggled for years to convert it into funding. Very few associations face structural stakes of that kind. Every association faces the same underlying governance question.
Reserve funding is not simply a financial exercise. It is a governance responsibility.
Thinking Beyond Today’s Owners
Sometimes boards view reserve projects as someone else’s problem. After all, some current owners may not even live in the community when a major component reaches the end of its useful life.
But every owner benefits today from infrastructure that previous owners helped fund and maintain. Reserve funding continues that cycle. When associations fail to save adequately, future owners often end up paying for years of wear and tear that occurred before they arrived. That is neither equitable nor sustainable.
The goal of a board should not be to leave future owners with deferred maintenance, special assessments, and financial instability. The goal should be to leave the community stronger than it was found.
Planning Is Always Better Than Reacting
No board can prevent every unexpected expense. But every board can choose whether to be proactive or reactive.
Proactive boards understand that reserve studies are not merely reports. They are planning tools. Reserve contributions are not merely expenses. They are investments in the long-term health of the community.
What Boards Should Do Next
Budget season is the moment this decision actually gets made, so the work is best done now rather than in the spring.
- Confirm whether a reserve waiver is on your books. Ohio associations relying on a waiver under ORC 5311.081(A)(1) or ORC 5312.06(A)(1) need a fresh majority vote in writing every year. Check that last year’s vote was documented and that this year’s is on the annual meeting agenda.
- Determine the age of your reserve study. If it predates your last major project, a significant assessment change, or the current cost environment, it is due for an update.
- Ask your reserve specialist which funding method the study recommends. If your association is on baseline funding, understand what changing that would cost annually before the board has to decide.
- Model the 15 percent line if you are a condominium. Compare your current reserve contribution against 15 percent of budgeted assessment income and know the gap before a buyer’s lender finds it for you.
- Put the reserve contribution on the budget agenda as its own discussion item. Reserve funding decided in the last ten minutes of a budget meeting is reserve funding decided by default.
- Communicate the reasoning to owners before the assessment notice goes out. Owners accept increases they understand far more readily than increases they discover.
The roof doesn’t care how it gets funded. The real question is whether the board will create a plan that allows every owner to pay their fair share, protects property values, reduces risk, and fulfills the board’s responsibility to the community it serves.
That is what reserve planning is really about.
If your board is working through its reserve contribution for the coming year, weighing whether to commission or update a study, or trying to understand where your community stands against the new lender thresholds, reach out to us here. Eclipse works with reserve specialists across Ohio and Northern Kentucky and can help match your community with the right scope of study for its situation.
This article is informational and is not legal, financial, or engineering advice. Statutory requirements and lender guidelines change, and their application depends on your association’s governing documents and specific circumstances. Boards should consult their association attorney, CPA, and a qualified reserve specialist before making capital planning decisions.
