Whenever a common component fails and needs to be repaired or replaced, the cost of that repair/replacement is paid for by unit owners through an established repair and maintenance capital reserve account, borrowing funds from an established line of credit or via special assessment levied on unit owners.
Each year board members are required to ratify an operating budget that should include a capital contribution for any predicted repair or maintenance costs associated with the common components in a property.
Associations should have an established reserve account to ensure that planned repairs and maintenance costs are paid for without billing unit owners through a special assessment.
Reserve accounts are established to ensure that unit owners are not financially burdened by special assessments and to ensure that the financial budgeting necessary to ensure the financial healthy and habitability of a condo or co-op property is in place.
A Reserve Study report is important to ensure component repair and replacement funding. It is also utilized to provide answers to questions asked on lender questionnaires and reduce board liability.