The Importance of Condo Reserve Fund: Everything You Need to Know

Are you a condo owner or part of a Condo Corporation in Ontario? Then you must be aware of the importance of having a Condo Reserve Fund. In this blog article, we will discuss everything you need to know about the condo rules and Condo Reserve Fund in Ontario.

What is a Condo Reserve Fund and How Does it Work?

Ontario Condominium Act, 1998 requires every condominium corporation to set up and maintain a reserve fund. Condo Reserve Fund in Ontario is a pool of money set aside by a Condo Corporation to cover the cost of major repairs, replacements of the condominium’s physical assets. The Condo Reserve Fund is used to ensure that the Condo Corporation has enough money to cover the cost of unexpected repairs or replacements that may arise in the future.

Condo Reserve Fund contributions are usually made by condo owners through monthly common expense fees. The amount of contribution is determined by the Condo Corporation’s board of directors and is based on the estimated cost of future repairs and replacements.

Managing Condo Reserve Fund: Best Practices for Condo Corporations

Condo Reserve Fund management is very important. The board and management must ensure that there is enough money to cover the cost of future repairs and replacements.

In the first year of operation, the condo corporation is required to contribute the minimum of 10 % of the Operating budget to the Reserve Fund. According to our internal research, the average contribution to the Reserve Fund for an established high-rise condominium within CityTowers portfolio is between 19.5% and 26 %.

Best practices for managing Condo Reserve Fund include:

• Conducting a Reserve Fund Study every three years to assess the state of the common elements and estimate the cost of future repairs and replacements.
• Developing a Reserve Fund Plan that outlines the expected contributions and expenditures for the next 30 years.
• Investing the Condo Reserve Fund in low-risk investments to ensure that the fund grows over time and generates income.
• Keeping the Condo Reserve Fund separate from the operating fund to avoid using the reserve fund for day-to-day expenses.

Condo Reserve Fund Study: Understanding the Basics

A Condo Reserve Fund Study is an essential tool for Corporations to assess the state of the common elements and estimate the cost of future repairs and replacements. The Reserve Fund Study is conducted by a qualified engineer or architect and includes:

• An inventory of the common elements and their condition.
• An estimate of life expectency of each common element or piece of major equipment.
• An estimate of the cost of repairing or replacing each common element.

There are three classes of Reserve Fund Study in Ontario:

Class 1 – Comprehensive Study

Class 2 – Updated Study based on a site inspection

Class 3 – Updated study without a site inspection

The Reserve Fund Study is used to develop a Reserve Fund Plan that outlines the expected contributions and expenditures for the next 30 years.

Investing Condo Reserve Fund: Opportunities and Risks

The Condominium Act, 1998 requires that Condo Reserve Fund be invested in low-risk investments to ensure that the fund is safe, grows over time and generates income. The investment opportunities for Condo Reserve Fund include:

• Guaranteed Investment Certificates (GICs)
• Federal and Provincial Strip Bonds
• Treasury Bills issued by Canadian Government
• Canadian Government and Provincial Bonds

Condo Corporations need to be aware of the risks associated with investing the Condo Reserve Fund. Investing in high-risk investments can result in losses that can impact the Condo Reserve Fund’s ability to cover the cost of future repairs and replacements.

Contributions to Condo Reserve Fund: Who Pays and How Much?

Condo owners contribute to the Condo Reserve Fund through monthly regular assessments known as condo fees. The amount of contribution is determined by the Condo Corporation’s board of directors and is based on the estimated cost of future repairs and replacements. The Condo Reserve Fund contribution is usually a percentage of the monthly common expense fee.

Considering and Defining Reserve Fund Expenses

While some of the reserve fund expenses such as boiler replacement or chiller retrofit are easy to apply to Reserve Fund, other corporation’s costs spent for repairs are not that easy to determine as Reserve Fund expenditure. A part of good Reserve Fund Management is to develop, approve and implement a Reserve Fund Expenditure Policy in your condo which would detail what can be a Reserve Fund Expense limiting a specific dollar amount for each category of expenses. The board and management must advise the Reserve Fund provider of the corporation’s policy. Such policy would also stipulate if Engineering Consulting Fees for a Reserve Fund project included in the Reserve Fund expense.

Clearly established Reserve Fund Policy will help better planning of the Reserve Fund and prevent using it to cover operating budget deficit.

Generally speaking, upgrades and improvements are not a part of the Reserve Fund and must be paid from the Operating Budget.

Condo Reserve Fund in Ontario: Regulations and Requirements

The Condo Reserve Fund in Ontario is regulated by the Condominium Act, 1998. The Act requires that Condo Corporations maintain a Condo Reserve Fund and conduct a Reserve Fund Study every three years. The Act also outlines the requirements for investing the Condo Reserve Fund and using the fund to cover the cost of repairs and replacements.

In conclusion, the Condo Reserve Fund is an essential tool for Condo Corporations to ensure that there is enough money to cover the cost of future repairs and replacements. Condo Corporations need to manage the Condo Reserve Fund efficiently by conducting a Reserve Fund Study every three years, developing a Reserve Fund Plan, investing the fund in low-risk investments, and keeping the fund separate from the operating fund. Condo owners contribute to the Condo Reserve Fund through monthly common expense fees, and the Condo Reserve Fund is regulated by the Condominium Act, 1998.

About the Author: CityTowers Property Management Inc. is a leading condo property management company in Burlington for over 15 years.

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