A reserve fund is a separate fund that is maintained by the condominium corporation. The reserve fund is funded by condominium owners, and is used to pay for the major repair and replacement of common elements and assets of the condominium corporation. This does not include routine repairs or maintenance such as snow removal. For example, the reserve fund may be used to repair or replace roofing, windows, roads, driveways, swimming pools, etc. It is important to note that repair and replacement does not allow for upgrades. For instance, it is unlikely that a reserve fund could be used to replace hallway carpeting with hardwood flooring.
Reserve fund studies are mandatory for all condominium corporations. A reserve fund study will determine if the amount of money currently in the reserve fund and the contributions collected for the reserve fund are sufficient to provide for the expected costs of major repair and replacement of the common elements and assets. The person(s) preparing the reserve fund study must have certain qualifications and cannot be affiliated in any way with the condominium corporation.
Once a condominium corporation is registered, it has 1 year to complete a reserve fund study. The reserve fund study must then be updated every 3 years. The requirements of the study or update will vary depending on how many previous studies or updates have been completed.
A reserve fund study will conclude with a report. The report will contain background information about the condominium corporation, the current condition of common elements and assets, the expected costs going forward to repair and/or replace the common elements and assets, and various contribution plans that may be used to fund these expenditures. The report must recommend a funding plan that forecasts at least 30 years from the date of the study. After receiving the study, the Board of Directors must prepare and implement a plan that outlines the future funding of the reserve fund.
It is important for a potential purchaser of a condominium to consult the latest reserve fund study. Reserve funds that are insufficient could result in unexpected raises in fees or lump sum payments in the future.
Matthew Wilson is an associate lawyer at the Ontario law firm, Lerners LLP. See his professional biography for more information about Matthew and his work in the area of real estate and land development, or email him at