March 2019
The best reserve fund studies are a team effort.
A condominium board of directors, its condominium manager and the reserve fund study provider all have pertinent information that should be incorporated in the reserve fund study.
Clear communication between these parties is crucial.
A condominium board of directors, its condominium manager and the reserve fund study provider all have pertinent information that should be incorporated in the reserve fund study.
A proper and fully funded reserve fund protects condo owners against special assessments to pay for repair or replacement projects. A condo corporation that implements a special assessment is likely one where the board and/or condominium manager failed to fulfill their role in preparing reserve fund studies over an extended period.
The Condo Act requires that a reserve fund study reflect a minimum 30 year period. During the first 25 years of a condo building repair work is limited to “smaller” replacement and repair projects.
When a condo board of directors or condominium manager are not fully engaged in preparing the reserve fund study bad things can happen.
Around the 25 to 30 year period roofs, mechanical systems and waterproof systems may require replacement. Major water and electrical distribution systems, plus structural components such as balconies and parking garages, may require replacement. Assuming that major building components last longer can prematurely drain a reserve fund yet allowing condo fees to remain unrealistically low. By the time lifespan assumptions are proven wrong there may be insufficient time to replenish the reserve fund through condo fees.
When a condo board of directors or condominium manager are not fully engaged in preparing the reserve fund study bad things can happen. These bad things are usually not evident for a number of years. By the time management looks close enough at a reserve fund study to realize items have been excluded or assumptions incorrect it is often too late. Larger condo fee increases, special assessments or a condo loan may be the only viable options for addressing a funding gap.
Some reserve fund studies extend out to 40 or 50 years so they can reflect the lifespan of condo building parts which may not be reflected over a 30 year period. These are real and known expenditures requiring funding which do not appear in a reserve fund study with a 30 year horizon. Resulting lower condo fees are at the risk of dramatic condo fee increases or special assessments at a later date.
