Contingency Fund

Contingency fund
Reserves set aside for extraordinary expenses resulting from a possible business interruption or disaster. Also called contingency reserve.
—definition—business dictionary

It is obvious that a condo corporation needs an operating fund and the Condominium Act states that the condo must have reserve funds  but why does a condo need a separate contingency fund?

I can see the need for one if the condo corporation finds itself getting into a long and expensive litigation or if there is another similar expense coming up that may be occurred but generally a contingency fund should not be required.

If the operating fund and the reserves are fully funded, and no expensive legal expenses are expected, then there is no need for a contingency fund.

Not everyone shares this opinion.

Some condos created contingency funds as a third account in their financial statements. Any funds that have been collected through the condo fees and by other means that exceed the amount needed to balance the operating fund is transfered to the contingency fund.

If the money was transferred to the reserve fund, then it could only be used for major repairs and replacements and the management finds that far too restrictive.

A slush fund
So the contingency fund supposedly kept to pay for any future disasters is used to pay for various miscellaneous items or on pet projects that the board fancies.

Condo #1
They first started a contingency fund when they provoked the ground-floor commercial units into suing the condominium. The legal bills ran over $600,000. Once that legal battle was over, they spent $60,000 from the remaining funds on various operating expenses including cleaning dryer vents, electrical work, playground equipment, bicycle racks, elevator maintenance, carpet repairs and buying furniture and fixtures.

At the end of the year, instead of putting the remaining $94,681 into the Reserve Funds, they used the contingency fund to pay for $2,400 worth of
plumbing repairs.

Condo #2
This condo has $250,000 in their contingency fund. This fund has paid for new barbecues for the terrace and plumbing repairs. The condo's district manager defended having the contingency fund because it will allow the condo to pay for future energy-saving projects. (How barbecues and new equipment for the fitness room fits into energy saving projects is beyond me.)


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