Reserve Funds

The Condominium Act states that the condo must have reserve funds that can only be used to pay for major repairs and replacements of the common elements and the corporation’s assets.

For the corporation’s first year, 10% of the budgeted common element fees must be put in the reserve funds until the first Reserve Fund Study has been completed and approved by the board. Then the stated amounts needs to be added to the common element fees and deposited into a separate reserve fund.

A competent professional engineering company must prepare the reserve fund study. It will state the expected life of all the major components and includes a table listing the fees that are required to be raised every year for the next thirty years and states the estimated year when the repairs and replacements will be required.

Four points about Reserve Funds
1.
 Reserve expenses always occur. There is no dodging them. They are inevitable. Pretending they won’t happen is foolish. Bills for significant Reserve expenses are as real as any of the monthly utility bills. The only difference is that Reserve bills arrive separated by years, not weeks.
2.
 The board is responsible. It is the primary responsibility of the board of directors is to maintain, protect, and enhance the assets of the association. The Board is charted with the responsibility to run the association, which includes budgeting enough income to pay all the bills.
3.
 The owners always end up paying. The government is not going to fix your problems. There is only one entity that pays the bills, and they are the homeowners who are on title when the bills come due.
4.
 Reserve expenses grow if deferred. Like most other bills, there are penalties for being late. In addition to the expenses not going away (see rule #1), reserve expenses get larger the longer they are deferred.

The Reserves are protected

Rob Ford shows the popularity of promising no tax increases

The Act also forbids the reserve funds being used for any other purpose than providing for the major repairs and replacements to the common elements.

Seems pretty straightforward.

However, far too often that does not happen in real life. Many boards cannot or do not wish to raise the condo fees high enough to raise all the needed monies that the reserve fund study requires.

Far too many owners resist fee increases and will remove directors who raise their fees higher than the owners want to pay.

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