Answers to your questions about reserve funds.
Reserve funds are accounts that condo corporations maintain specifically for major repairs and replacements of common elements and assets. They are funded by owners via their common expense fees and cannot be used for anything other than major repairs and replacements of the common elements and assets of the condo corporation. Corporations must conduct periodic studies to determine the amount of funding required to cover those expected costs.
Condo boards must review reserve fund studies within 120 days of receipt and propose a plan that will adequately fund the reserve fund for future major repair and replacements of the common elements and assets. Boards sometimes need to increase contributions to the fund to accommodate this. Check out the CAO’s Best Practices Guide: Ensuring Healthy Reserve Funds for more details and section 94 (8) of the Condo Act.
Reserve fund studies have specific content requirements, such as an inventory of the condo corporation’s common elements and assets, a financial analysis of the reserve fund and a 30-year funding plan. They must be completed by qualified professionals such as certified engineers, architects, appraisers or reserve planners, among others. CAO’s Best Practices Guide: Ensuring Healthy Reserve Funds outlines specific requirements for corporations’ reserve funds.
There are three types of reserve fund studies – Class 1 (comprehensive), Class 2 (updated study with site inspection) and Class 3 (updated study without site inspection). Condo corporations must complete a Class 1 study within the first year following the registration of the condo corporation’s declaration and description, followed by Class 2 and Class 3 studies, which are done on an alternating basis at least every three years. Consult the CAO’s Best Practices Guide: Ensuring Healthy Reserve Funds.