CONDO ARCHIVES

Reserve Fund Challenge

January 2021

A board member suggests deferring a major expenditure – roof repair, garage repair, window replacements, elevator or other common area replacement – to keep reserve fund contributions, and condo fees, lower.

Should the board agree to this?

The Condominium Act requires that a Reserve Fund Study be updated by experienced building condition and reserve fund assessors.  The purpose is to maintain a positive cash flow in the reserve fund while undertaking repair and replacement projects as they become necessary.  This includes urgent and unexpected expenditures.

The success of any condo corporation is measured by good financials including positive cash flow and allocation of funds for necessary projects.

Low condo fees ensure insufficient funds available when needed.  Building system failures become more frequent when patch repairs are undertaken because of insufficient funds.  Operating expenses increase, structural damage grows and problems become more frequent.

No.  Any condo board agreeing to this is not acting in the best interest of owners.

… trickery reduces condo fees in the short-term all but ensuring nasty surprises in the future including large special assessments

 

Financial manipulations to maintain unrealistically low condo fees including application of a lower rate of future inflation, high rate of return on invested funds or longer lifespans for building infrastructure, Henry Jansen of Criterium-Jansen Engineers advises, should likewise be avoided.  “Care should be taken to ensure items are not left out of a reserve fund study.  Such trickery reduces condo fees in the short-term all but ensuring nasty surprises in the future including large special assessments.”