Overview
The Condominium Property Act requires condominium corporations to establish and maintain a reserve fund, as laid out in the reserve fund plan, to pay for major repairs and replacement of common property. Common property includes parts of the building that are shared and not owned by individual unit owners, as well as property owned by the corporation, such as equipment.
Contributing to reserve funds
Condominium owners pay for repair or replacement costs by contributing to the reserve fund. The fund is not to be used for ongoing maintenance, such as yard work or window cleaning. It may be used for capital improvements if those improvements are included in the reserve fund study or approved by special resolution of the corporation. Capital improvements are additions or alterations that may increase the property's value, while reserve fund expenses are generally for repairing or replacing existing property.
Reserve fund study
Condominium corporations have 2 years from the date the condominium plan was registered to complete the initial reserve fund study and approve a plan. This applies regardless of whether a developer, purchaser, or both own the condominium units.
The Act and regulations give the corporation responsibility and authority to ensure a reserve fund study is completed and to make decisions about the reserve fund. These responsibilities are carried out by the board of directors.
A reserve fund study is prepared by a third party and assesses the state of the condominium property. The study provider must prepare a report that identifies when property should be repaired or replaced, estimates the related costs and projects how much money the corporation should have in the reserve fund.
A reserve fund plan is created based on the reserve fund study and approved by the Board of Directors. The reserve fund plan outlines the decisions the board has made regarding what repairs and replacements will be undertaken each year. The amount of funding that is available in the reserve fund and requirement for repairs and replacements will guide a condominium board to make decisions regarding contributions from owners to ensure that repairs and maintenance can be carried out.
The corporation must:
- engage a reserve fund study provider to conduct and prepare a reserve fund study and report
- provide a copy of the approved reserve fund plan to the owners before implementing the plan
- maintain the reserve fund at an appropriate level so that the corporation can maintain the property based on the reserve fund study, plan and other needs
- maintain the reserve fund in a separate bank account and not combine the funds with other corporation funds except when bills are paid under the reserve fund plan and ensure all managers or other persons handling the corporation money do the same
- prepare and provide to the owners an annual report on the reserve fund
- this report is to be provided as part of the annual general meeting package
A study must be completed no less than every 5 years and should consider a 30-year timeframe. A corporation may decide to complete a study sooner or more frequently, depending on its needs.
Money in reserve funds
The corporation is responsible for determining how much money is needed in the reserve fund based on the reserve fund study and the reserve fund plan. The amount will vary depending on the corporation's specific needs. Additional information on reserve fund study providers, plans and reports is available at: Reserve fund study providers, plans and reports.
Corporations may meet their funding requirements by:
- including an allocation for the reserve fund from the monthly contributions (condominium fees)
- good budgeting planning
- increasing condominium contributions
- levying special assessments
- borrowing money
- using a combination of the above
These options give the corporation flexibility as to how and when to deal with repair and replacement costs, plan for future anticipated costs and providing contingencies to deal with any potential surprises and undue hardship for owners.
For example, if the corporation does not have enough money in the reserve fund to cover significant repairs or incurs other large, unexpected expenses, the board may require each condominium owner to pay a special levy to cover the costs. Special levies must comply with contributions and cost categories as set out in legislation.
If a reserve fund is not adequately maintained, a potential outcome of this may be that condominium boards have to levy special assessments to cover unforeseen expenses.