Reserve Blurb

What are Boards & HOAs allowed to spend reserve funds on?

Common-interest developments can spend money three ways: through operating funds, as a capital improvement, and as a reserve expense. According to the California Civil Code, reserve funds are for, “the major components that the association is obligated to repair, replace, restore, or maintain…” (Cal Civil Code §5510) in the common area. A capital improvement, on the other hand, is a new component(s) being introduced to the association’s common area. Reserve funds cannot be used for a capital improvement; only for existing components.

When differentiating operating items from reserve components, it’s best to think of the big picture. Light fixtures and poles are reserve components, but the bulbs themselves are operating expenses. Similarly, pool chemical controllers and pumps are reserve components, but the acid and chlorine are operating expenses. Ultimately, it is up to the Board, in conjunction with their reserve professional, to set parameters that best suit the needs of the community. This can be done by the Board establishing a monetary threshold for reserve expenditures.