27 May What is a Condo Reserve Fund?

What is a Condo Reserve Fund?

The Condominium Act, 1998 requires that all condominiums have a reserve fund.  A reserve fund is a special account with a financial institution such as a bank, loan and trust corporation or credit union. This account is separate from the condominium’s operating fund, and it is used to pay for major repairs and replacements to the condominium’s common elements.  A portion of the owner’s monthly common expenses fee is deposited into the reserve fund every month. The reserve fund is intended to ensure that the corporation has enough money to pay for future repairs. It is prepared by a specialist, like an engineer, approved by the board of directors, and then the owners are informed of the results of the study.

Contents of a reserve fund study

Reserve fund studies include both a physical assessment and a financial plan. The study will address details such as:

• • • all parts of the building the corporation will have to repair or replace. These are usually referred to as “components.” These can include exclusive-use common elements, like balconies and backyards.
    • estimates as to when the repair or replacement of a component is expected to occur.
    • estimates of the amount of each expenditure in each year.
    • any assumptions.
    • a recommended reserve fund contribution amount.
    • recommended increases in reserve fund contributions for the following three fiscal years. Engineers can include more than one scenario for these increases.

Approximations, not certainties

It is important to note that the reserve fund study is only a guide, and is based on assumptions and information available at the time it is prepared. It is educated guesses on amounts and dates for the work that will need to be done in the future. These projections may end up being inaccurate, depending on what happens in the future. For instance: emergency repairs or replacements.

Timing of reserve fund studies

The condominium hires engineers and/or architects to do:

• • • the first study during its first year of incorporation.
    • follow-up studies every three years afterward.