It is mandatory that your condominium collects reserve funds. How much should your director be collecting for the fund? Further, what can those funds be used for? We’ll discuss everything you, the owner or property manager, need to know about condo reserve funds.
What is a Condo Reserve Fund?
A condo reserve fund is a capital reserve fund, like a savings account, that you can draw on when your building needs serious repairs. A certain portion of your rental fees are placed in this account so that when major problems or natural disasters occur, you will have the capital to get them dealt with quickly. In Ontario, condo reserve funds are mandatory for any building built after 2001, and many buildings built beforehand have now begun to carry them as well.
How Do You Know What to Collect?
Condominiums are required, by law, to carry out a study to find out exactly how large their reserve fund should be. These studies attempt to project the costs of your condo over the next 25 years. The study attempts to include inflation and predict any major repairs that could be needed.
After the study is conducted your board has 120 days to decide on a plan based on the study’s findings. They have about 15 days to send you an overview of their plan. It is important to periodically perform a new study or update your current one to reflect the needs or your building as time progresses. Exactly how often this must be done has not yet been established in law, but most condominiums perform an update every three years.
What Should You Use the Condo Reserve Fund For?
Condo reserve funds are intended to be used for only major repairs and replacements. They may not be used for routine maintenance that is needed due to normal wear and tear. For example, a condo reserve fund cannot be used for the simple task of mowing the lawns. However, it may be used to replace turf that has been destroyed by a flood.
Also, this fund may not be used for upgrades, even if you happen to choose to upgrade an item when it needs replacement. What does that mean? If you need to replace the concrete steps at the front of your building, but choose to replace them with higher-cost marble steps instead, you may not use the condo reserve fund to do so.
Where Can I Attain Consultations?
Legally, your condo board does not have to consult you, the owner, to make decisions about the reserve fund. However, if your director fails to use your fund properly, or fails to grow the fund properly, you may sue them, as this may negatively affect your property value.
Condominium reserve funds aren’t simple, but Central Erin Property Management has the experience to ensure they are handled properly and legally. If you’re thinking of letting a professional property management firm handle your building for you, reach out to us for a property proposal.