Let’s Talk About Reserve Funds
Let’s Talk About Reserve Funds
What is a reserve fund? Is it reserved for parties? New winter mats at the entrance? Fixing up the parking garage?
Who is responsible for overseeing a reserve fund? What should owners know?
Let's keep reading to find out!
What is a reserve fund?
Let's start with the basics and discuss what a reserve fund is.
A Reserve Fund Study is a plan for the long-term funding of the shared components of your Condominium Corporation. This may include items such as:
- the roof,
- windows,
- exterior paint,
- common corridor carpeting,
- mechanical systems,
- plumbing systems,
- and more!
The report provides a planned path for budgeting for those longer-term expenditures that do not occur every year, but that the owners collectively are responsible for replacing and repairing.
Who needs a reserve fund?
The initial reserve fund study is required within three years of the date of the corporation’s first annual meeting.
If the condominium was created through conversion of an existing apartment building, a reserve fund study must be undertaken by the developer before the sale of any unit.
Do you only need to do the reserve fund study once?
Wouldn't it be great if we only had to do the study once and call it a day?
This is not the case. A condominium corporation's reserve fund study must be updated on a five-year cycle following the first report.
Who conducts the reserve fund study?
First, logistics.
The Condominium Property Regulation defines "qualified person" under section 51.1(d).
"A reserve fund study can be completed by a qualified person who holds liability insurance in a minimum amount of $1,000,000 and, based on reasonable and objective criteria, is knowledgeable with respect to the components; the operation and maintenance of components, and the cost/replacements of components. A qualified person includes but is not limited to:
- a) a licensed applied science technologist within the meaning of The Saskatchewan Applied Science Technologists and Technicians Act;
- b) b) a member of the Appraisal Institute of Canada holding the designation of Accredited Appraiser Canadian Institute;
- c) a person who holds a certificate of practice within the meaning of The Architects Act, 1996;
- d) a member of the Real Estate Institute of Canada holding the designation of Certified Reserve Planner; and
- e) a licensed professional engineer within the meaning of The Engineering and Geosciences Professions Act."
Additionally, if the reserve fund study is being undertaken by the condominium developer, the person completing the reserve fund study must be an independent person and cannot be:
- an owner, employee, or agent of the developer;
- a property manager of the developer, or
- otherwise associated with the developer
What does the reserve fund study tell us?
It can be easy to get lost in the details. So, ultimately, what does the reserve fund study tell us?
The Reserve Fund Study will state the reserve fund balance at the date of the study, and will include funding plan scenarios for each year of the study which will indicate the adequacy of the reserve fund as defined in the Condominium Property Act, the current anticipated repair and replacement costs for each given year, and an opinion on the adequacy of the current rate of funding for the reserve fund.
The condominium corporation's board will ensure that a copy of the reserve fund study is attached to the annual report for the corporation.
This means that the reserve fund study is a valuable tool for budgeting, and for planning the repair and replacement schedule for your Condominium Corporation.
Will your condo fees fluctuate after a report is completed?
Short answer? It might.
Long answer?
The reserve fund study will analyze the current state of your already existing reserve fund, relative to the long-term financial obligations of the condominium corporation, to repair and replace components.
The review will provide an indication if your condominium corporation is in good financial health based on the current contributions, or if it is recommended that additional funding is necessary.
As a condominium owner, it's important you understand the impact that a reserve fund study has on your condominium corporation, and how it affects you.
Reach out to your condominium manager or board of directors if you have any questions.
Source: https://saskatchewan.reserveadvisors.ca/resources/faq.php