November 2024
Condominium Authority of Ontario (CAO) has produced a report addressing the state of condominium corporation reserve funds.
This report is CAO’s response to the Auditor General’s 2020 value-for-money audit on condominium oversight, and the result of two surveys conducted by the CAO. While much in this report is of little interest to condominium owners, directors and management, and intended to justify their operations to other government bureaucrats, one objective of their corporation survey was to gather data about the state of reserve funds of Ontario’s condominium corporations.
This survey found that the majority of condominium corporations do not have adequate reserve funds to pay for future repairs and replacements. Central to this deficiency appears to be use of the Consumer Price Index (CPI) rather than the Building Construction Price Index (BCPI). This reaffirms concerns identified by Jon Juffs of Egis as early as 2017 in his book “Reserve Fund Essentials” along with Reserve Fund Studies can be Wrong 18 out of 25 Times and other articles published by Toronto Condo News.
Since 2021, nearly two-thirds of corporations were advised to increase their reserve fund contributions by more than three percent. Two-thirds of corporations contributed more than 30 percent of their total budget to the reserve fund in 2023, and 63 percent contributed more than $2,000 per voting unit to the reserve fund. Finally, the report notes that rising construction costs over the last three years may be triggering more special assessments and loans to adequately fund the reserve fund.
The report states “In 2022 and 2023, inflation rate assumptions used in reserve fund studies appear to have increased to between 2% and 3%, as shown in 35% of studies for 2022 and 36% of studies for 2023. The proportion of studies assuming inflation rates between 3% and 6% also seem to have increased during this time period, as shown in 27% of studies for 2022 and 24% of studies for 2023, up from 17% in 2021.”
Looking at monthly common expense fees, of the corporations reporting their percentage increases per year, including both operating and reserve fund contributions, over 80 percent of corporations reporting increases in monthly fees report that fees rose by less than 10 per cent for 2021, 2022, and 2023.
One final insight to note in the report, as mentioned earlier, is that 66 percent of respondent standard condo corporations contributed more than 30 percent of their total budget to the reserve fund in 2023.
In short, these findings are consistent with earlier Toronto Condo News articles suggesting that many condominium corporations have been understating the actual rate of inflation and underfunding their reserve funds. Communities suffering from underfunding will, at some point, be forced to correct for this as needed funds are found not to exist for maintaining their home and systems.
While these insights are useful to validate deficiencies in reserve funds and the need to increase monthly contributions, it falls short of calls for CAO to require condominium corporations to submit their annual financial statements electronically to a database that supports anonymous reporting of condominium corporation expenditures and comparisons with similar buildings.
Click here to read the CAO’s Report on Reserve Fund Survey Findings.
