Protecting Condominium Owners Act – Reserve Funds
This marks another excerpt from the Ontario Governments web-site publications on this new act and what it means. To read the entire article, please click on the link at the bottom of this article.
Every condo corporation is required to set up a reserve fund and must ensure that it is adequate to pay for major repairs and replacement of the common elements and any assets of the corporation as they age. These items typically include the roof, the exterior of the building, underground parking garages, roads, sidewalks, heating and cooling equipment, plumbing, elevators and recreational facilities.
Reserve funds are mandatory in Ontario. The current Condominium Act requires that boards must undertake periodic reserve fund studies as a way of ensuring that a corporation’s fund is adequate. This step has made an important contribution towards improving the management of condo communities.
Even so, many reserve funds are too low to meet their corporations’ needs, especially in older properties. As these properties age, owners are being called on to make significant extra contributions for repairs that many neither planned for nor expected — and often cannot afford.
Furthermore, participants in the Condominium Act Review agreed that owners should be encouraged to gain a better understanding of how their reserve fund operates.
The act has several provisions to address these concerns.
1. Adequacy of reserve funds
Although the current Condominium Act requires that corporations have adequate reserve funds, it does not define the term “adequate.” Regulations under the act establishes how adequacy would be determined for:
· reserve fund studies
· a condo board’s required funding plan following a reserve fund study
· the amount of common expense fees that a corporation collects from the owners to apply to the reserve fund
2. Purpose of reserve funds
The amendments will broaden the purpose of reserve funds to include:
· major repair to units (in addition to the common elements and any assets of the corporation) if a corporation has an obligation to repair units
· other items and projects set out in the act’s regulations (e.g., energy-saving projects)
The regulations will be able to set out what constitutes a “major repair.”
3. Expert opinion on the reserve fund balance
Under the amendments to the Condominium Act, if a reserve fund were to fall below the level set out in regulations, the board would be required to obtain an outside opinion on whether it should conduct a study on the adequacy of the fund before the next required periodic study.
4. First-year reserve fund contribution
Under the amendments to the Condominium Act, developers would need to specify, in the corporations’ first year budget, the amount of the common expenses to be paid into a condo corporation’s reserve fund.
Regulations would set out how that amount would be calculated. One option might be a minimum percentage of the operating budget.
5. Accountability for a first-year deficit
Under the amendments to the Condominium Act, if a developer does not comply with the act’s rules for calculating the first year budget reserve fund contributions, the developer would be liable to the corporation for the amount of money that it would take to be in compliance.
Updated: April 22, 2016 - Published: May 27, 2015
For the full article as published by the Ontario Government, please click on the link below