Reserve funds can only be used to pay for repair and replacement of common area components. Reserve funds can never be used to add a new component to the common area. So for example, you cannot use reserve funds to add a new playground to your HOA. But if you are replacing an old playground that is perfectly fine. There are some cases where a common area component needs replacement and it is not listed in the reserve study. I’ve had associations call me up and say we have an old reserve study that does not have our water heater listed and we need to replace it. Can we use reserve funds? There are plenty of reasons why the water heater may not have been included, perhaps the association did not inform the reserve specialists that they had a common water heater or maybe the reserve specialist just made a mistake. In either case the association can still use reserve funds to pay for the component.
It is important to look at the associations percent funded and realize that since the water heater was not included in their reserve study that money set aside for something else is paying for this water heater. If the association’s percent funded is low and they have other lager expenses coming up it may be wise to do a special assessment to pay for the water heater. It’s also important to make sure the water heater is added to their next reserve study. Also if it’s not a reserve study that’s less than a year old they should get a new one to see what their current percent funded is.