Proper Use of the Reserve Fund – Letter to the Editor

November 2022

I would like some clarification about section 97 (2) of the Condo Act.

It was the opinion of the board that it was necessary to install magnetic locks in the underground garage to ensure the safety and security of residents.  Authority for the addition of assets is from this section.

Section (97) 7 states that ‘the cost of an addition, alteration, improvement or change that the corporation makes under this section shall form part of the common expenses’.

Some auditors and lawyers believe that the reserve fund, which forms part of the common expenses, can be used to pay for the costs.  Is this correct?


Response from Toronto Condo News

Your questions relate to the authority of the condo board to undertake building upgrades for the security and safety of property and residents, and their funding.  The sections you cite are from the Ontario Condominium Act.  Toronto Condo News does not offer legal opinions.  What we do offer is an understanding of best practices.

The condo board has authority to undertake repairs and upgrades for reasons that include security and safety.  Once an upgrade has been completed, the board is responsible for ongoing maintenance.

The reserve fund is a pool of money set aside and invested for the purpose of maintenance, repair and replacement of the many elements in your building.  It is not a fund to be used for the addition of new building components.  The size of this fund is determined by a reserve fund study that is regularly updated.

Consider the example of a building with security cameras. These cameras are part of the building infrastructure, incorporated in the reserve fund study, and their eventual replacement paid by money in the reserve fund.  The board decides that more cameras are necessary.  This is an addition not reflected in any prior reserve fund study.  Funding is not a reserve fund expenditure for which funds have been set aside.  Funds for the additional cameras should come from the operating account.  Once the addition is complete, this addition gets reflected in a future reserve fund study, and their future replacement funded by the reserve fund.  Doing otherwise is a deceptive practice making future owners in a building responsible for “reimbursing” the reserve fund for this expenditure.

While it may be true that “Some auditors and lawyers believe that the reserve fund, which forms part of the common expenses, can be used to pay for the costs” in the above example, it is not clear (at least to us) that such an opinion is supportable or in the best interests of a condominium community.

For a more detailed explanation of your reserve fund, see articles in the Condo Archives under Financial Management – Reserve Funds .