Reserve Fund

    Each Life Lease complex should have a Reserve Fund to help meet the costs of large maintenance or unexpected expenditures. If a roof needs to be replaced, carpeting throughout the facility, expensive structural repairs or other such items arising from aging buildings and equipment, then the Reserve Fund can be used to meet these expenses. This protects against large cash calls against current tenants for these large expenditures.

    A Reserve Fund is established and built up through a variety of mechanisms. Annual operating surpluses, unexpected or unusual revenues, or regular and budgeted annual additions to the fund are often used to build a Reserve Fund. The size of the fund should be determined by a forecast of expected future expenditures, interest rates, COLA changes and the time frame for such expenditures. The Legislation does permit use of the Reserve Fund for operating expenses in circumstances that can't be met through the annual operating budget.

    When considering the Life Lease option, be sure to ask about the size and use of the Reserve Fund.