We talked about reserve fund previously. It’s the money we (the condominium corporation) set aside for “rainy days.” But how do we know that we have enough money in the reserve fund?
We have to do a study to see what needs to be repaired or replaced down the road, and how far down the road, and how much will it cost? This study is called reserve fund study, and is actually mandated by the the Condominium Act 1998. The Act also stipulates that a reserve fund study has to be conducted by qualified professionals. [1]
For condominium corporations registered under the “new” Act, they have to perform a first reserve fund study within the first year after the registration of the Declaration and Description of the condominium corporation. [2]
Reserve fund study is a new thing introduced in the “new” Act. For condominium corporations registered under the “old” Act, they did not use to have to conduct a reserve fund study. As the “new” Act comes into effect, they now have to. [3] They now have to conduct their first reserve fund study within three years after the “new” Act comes into effect. [4] And the “new” Act came into effect on May 5th, 2001.
There are three kinds of reserve fund studies: [5]
- Comprehensive study – this is usually a first reserve fund study.
- Updated study based on a site inspection.
- Updated study not based on a site inspection – this is usually just a financial review.
The first reserve fund study (which is a comprehensive study) consists of taking inventory of assets (i.e. big items) of the condominium corporation, estimating the remaining lifespan of each component, and reviewing the current financial position of the reserved fund. Then an estimated projection is made as to how much money will be required to repair or replace items that are due for repairs or replacements.
At the end, a reserve fund study report will be produced, detailing the findings. The report also recommends the dollar amount (after taking into consideration the projected interest rate and inflation rate) to contribute to the reserve fund each year for the next 30 years so as to meet the obligations of “saving enough money for the rainy days.” (The 30-year time span is mandated by law.[6])
Reserve fund study, after the first one, has to be conducted once every three years, as stipulated by law. [7] (Just to be technically more complete: Each subsequent reserve fund study after the first one will alternate between a financial review and an on-site inspection.)
This year, the three corporations of the Grandview Way complex are due for conducting a reserve fund study with on-site visit. And as of writing, the reserve fund studies are already in progress.
When the reserve fund study is complete, the Board has to send a notice to unit owners in Form 15. [8]
Notes:
[1] Condominium Act 1998, Section 93, Subsection (6): “A reserve fund study shall be conducted by a person of a prescribed class who shall have no affiliation with the board or with the corporation that is contrary to the regulations made under this Act.”
Ontario Regulations 48/01, Section 32 goes on to fill in the details as what professionals are qualified to conduct the reserve fund study.
[2] Condominium Act 1998, Section 94, Subsection (4): “A corporation created on or after the day this section comes into force shall conduct a reserve fund study within the year following the registration of the declaration and description and subsequently at the prescribed times.”
[3] Condominium Act 1998, Section 94, Subsection (5): “A corporation created before the day this section comes into force shall conduct a reserve fund study at the prescribed times.” (And Ontario Regulation 48/01 Section 31 fills in the detail by defining this prescribed time.)
[4] Click here to read Ontario Regulations 48/01, Section 31.
[5] Ontario Regulation 48/01, Section 28:
“The following classes of reserve fund studies are established:
1. Comprehensive study.
2. Updated study based on a site inspection.
3. Updated study not based on a site inspection.”
[6] This 30-year time span actually is not stipulated in the Condominium Act 1998 itself, but in the Ontario Regulation 48/01, Section 27.
[7] The Condominium Act 1998, Section 94 just says “The corporation shall conduct periodic studies...”, and the Ontario Regulation 48/01 Section 31, Subsection (3) fills in the gap of stipulating it to be “within three years of completing the reserve fund study...”. Follow the links to read the full text of the Subsections.
[8] Condominium Act 1998, Section 94, Subsection (9)(a): “Within 15 days of proposing a plan, the board shall send to the owners a notice containing a summary of the study, a summary of the proposed plan and a statement indicating the areas, if any, in which the proposed plan differs from the study.”
Ontario Regulation 48/01 further stipulates that “the notice that the board is required to send under subsection 94 (9) of the Act shall be in Form 15.” (A copy of the Form 15 is also found in the same Ontario Regulation 48/01.)
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Reserve Fund Study
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