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Habitat Magazine Insider Guide



Board Talk: A Conversation About Reserve Accounts

Laura Liben: I live in a 10-unit brownstone co-op on the Upper West Side. I think I remember reading in Habitat that the reserve account should equal six months of the building’s maintenance fees. We are in an old building. Does this sound about right?


VP11104: It really depends on your monthly income and the state of your building’s structure. I gather that your building has no elevator. So the main emergencies you could have are the boiler and maybe some major plumbing work. Local Law 11 (façade maintenance) shouldn’t apply for your building. Typically, banks require that co-ops maintain at least 10 percent in reserves, which is by far not enough. You should have enough money in your reserves to cover emergencies like replacing a boiler if it is reaching its life expectancy, for example. The roof and façade should be on your list as well.


RLM: Reserves vary from building to building. Before deciding on an amount, I’d recommend you do a complete survey. How long will your boiler last? Your oil tank? How are your windows? Your fire escapes? Your façade? (Even if you’re not covered by LL11, you need to make sure no liability issues are sneaking up on you in the form of loose bricks.) What infrastructure improvements (electrical, plumbing, and waste disposal systems) are needed? How’s your foundation? Your roof? Is your building dingy/dark/dirty? What’s your mortgage? How are your arrears? Think of every question you will need to address in a financial manner. Spend a little money upfront to get an engineer’s assessment, then sketch out a timeline for capital improvements (boiler in five years, roof in ten, etc.) and other needed repairs. Try to build your reserves to cover these without an assessment.

If your immediate financial needs are high, you may need to boost your reserves quickly, through a maintenance increase, flip tax, or income-producing idea; you can also impose one-time operational assessments, such as a fuel-oil surcharge, if your proprietary lease permits.


Steve-Inwood: My complex has reserves of about $8k per unit, and we do not consider this level sufficient. We currently have:

• Capital Reserve Account

• Mortgage Escrow

• Water/sewer self-escrow

• Real Estate Tax self-escrow

• Insurance self-escrow

Why self-escrow? Well, it has benefits for financial flexibility, earns interest on the accumulation of funds, and saves costs. Here is a summary of our current funds:

The capital reserve is self-explanatory; we have currently $650k in a segregated account.

Our mortgage agreement states that we maintain a separate reserve for mortgage payments equaling 10 percent of annual shareholder revenue (not including rental income). Its balance is currently $72k in another segregated account.

We save up monthly for the annual water/sewer bill. We currently have $40k in yet another segregated account for this purpose. This will need a lower balance if we can switch to quarterly billing.

We save up monthly for the annual real estate taxes. This allows us to pay it off early (all at one time) and to take advantage of earnings on the accumulation of funds and the New York City discount for paying early. We currently have $100k in yet another segregated account for this purpose.

We save up monthly for the annual insurance policy charges. This allows us to pay it off early (all at one time) and to not incur premium financing interest and fees. We currently have $11k in yet another segregated account for this purpose.

The last three are considered operating reserves, and we can draw on these funds at any time if necessary. If we do that, though, we have to live with the fiscal consequences: how do we make up the funds for when the payments are due? But sometimes buying time is all you need.

Having this many reserve and escrow accounts really adds to our financial flexibility; however, it is a somewhat complex structure. In my opinion, it takes a savvy management company to run this type of a setup. All of these accounts are at Vanguard.

We also like to keep $45k in the operating account by December of each year to get us through the January-June lean months. We keep this account at a local bank (we don’t assess the abatements).

Our audited financial statements can be found here:

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