Home Firm Overview Attorney Profiles Frequently Asked Questions Case Results Contact Us

Practice Areas

Business Law
Insurance Claims
Condominium & Homeowners Associations
Divorce & Family Law
Estate Planning
Motor Vehicle Accidents
Negligence & Slip & Fall
Real Estate
Construction Law
Debt Collection/Defense
For The Family Giveaway
Small Business Seminar Series 2017
Unsung Hero Award
Contact Us
Tell Me About Your Case:

06/13/13 It's The Law: Condos Have Reserve Account Investment Choices

It's The Law

Condos Have Reserve Account Investment Choices



As president of our association, I have a question regarding reserves. Is it possible to invest monies that are assessed and are accumulating in a reserve account sitting as cash in a bank? These funds may not be required for a 5 to 20 year period and are at the least being diminished by the inflation rate. Therefore, is it legal to invest these funds in "safe" instruments such as T-Bills?


Section 718.112 of Florida Statutes addresses annual budgets at (2)(f). The statute requires a proposed annual budget include estimated reserves and operating expenses detailed and budgeted by accounts and expense classifications. The proposed budget must include reserve accounts for capital expenditures and deferred maintenance, which at a minimum must include roof replacement, building, painting, pavement resurfacing and any other item that has a deferred maintenance expense or replacement cost of more than $10,000.00.

The statute requires reserve funds and any interest accruing thereon remain in the reserve account or accounts. A reserve account may only be used for authorized reserve expenditures unless approved in advance by a majority vote at a duly called meeting of the association.

The legislature has gone back and forth over the issue of whether reserve and operating funds can be comingled. Section 718.111(14) of Florida Statutes currently allows the funds to be comingled, but only for investment purposes.

Although Florida statutes provide a lot of direction concerning association finances, they are silent with respect to permitted investments. That leaves decision making in the hands of each association's board of directors, subject to any limits in the governing documents for a particular association. But, there may be other limits on the board's choice of investment vehicles.

Condominium directors are governed by both the Condominium Act and the Florida Not-For-Profit Corporation Act (Chapters 718 & 617 of Florida Statutes). Section 718.111(1)(d) of Florida Statutes mandates that officers and directors of condominium associations discharge their duties in good faith, with the care an ordinarily prudent person in a like position would exercise under similar circumstances and in a manner he or she reasonably believes to be in the interest of the association. An officer or director may be liable for money damages if the officer or director breaches or fails to perform his or her duties and such failure constitutes a violation of criminal law, constitutes a transaction for which the officer or director derived an improper personal benefit or which was reckless, in bad faith, with malicious purpose or exhibiting wanton and willful disregard of human rights, safety or property. The Condominium Act confirms that Sections 617.0830 and .0834 of Florida Statutes also apply to actions of officers and directors. Those statutes require officers and directors discharge their duties with the care of an ordinarily prudent person in a like position under similar circumstances in a manner the officer or director believes to be in the best interest of the corporation.

That language has generally been interpreted to mean that associations should invest funds in very conservative investments such as tiered Certificates of Deposits or government bonds. While not limited to bank accounts, the generally accepted prudent investments for associations are of the most conservative variety. That means they are virtually guaranteed not to lose money. And, even though conservative investments may actually lose ground to inflation and rising costs, risk of loss rather than rate of return is the primary guidepost for association investment.

If an association wishes to travel outside of that limited box, its directors may be exposing themselves to liability. Certainly, such associations should retain the counsel of an experienced investment advisor. A company even retaining an experienced investment advisor and conducting thorough research may not relieve directors of personal liability for bad investments.

This is in contrast with Florida's Prudent Investor Rule, which generally applies to fiduciaries such as trustees and guardians investing funds they manage as a fiduciary. Under this rule, a fiduciary actually has a duty to diversify investments unless, under the circumstances, the fiduciary believes it is in the best interest of the beneficiaries not to diversify. The rule requires exercise of reasonable care in context of an investment portfolio as a whole that should incorporate risk and return objectives reasonable suitable. In fact, a fiduciary may be liable for investing too conservatively. It would be virtually impossible for a condominium director to face liability for being too conservative in investment choices.

Many associations stick with the tried and true bank investments, such as money market accounts and Certificates of Deposit. But, even those carry some risk, as the financial stability of an institution and insurance limits on the association's accounts must be considered. Although there is discretion in an association's investment choices, that discretion should be exercised conservatively.

By: William G. Morris, Esquire

William G. Morris is an attorney with offices at 247 North Collier Boulevard on Marco Island, Florida. His practice covers a broad range of subjects, including civil litigation, real estate, business and corporate law, estate planning and probate, domestic relations and contracts. He writes this column periodically with respect to legal matters that frequently affect non-lawyers. The information contained in this column is not intended as legal advice and, of necessity, is generalized. For questions about specific circumstances, the reader should consult a qualified attorney.

Questions for this column can be sent to: William G. Morris, e-mail: wgmorrislaw@embarqmail.com or by fax, (239) 642-0722 or

The Marco Island Eagle

Other articles of interest can be viewed at our website, www.wgmorrislaw.com.

Categories: Articles