Why Maintain the Condo Reserve Fund – Uses include future expenses or current deterioration

October 2018

Your condo roof may last 20 or 30 years.

When replacement of that roof is necessary, not all condo corporations have set aside sufficient funds to pay for this major expenditure along with everything else funded through the reserve fund.

What happens next is a special assessment where all condo owners are required to contribute to the replacement of that roof. Some condo owners may complain about the cost and the “unfairness” of paying for a new roof others will benefit from in the future. Certain owners may lack available funds at the time they are needed.

All major components and systems eventually fail and require replacement. Assessments are what occur when condo boards fail to plan by setting aside sufficient funds for this purpose.

Condo boards typically view reserve funds as existing to pay for future expenses. People prefer to avoid thinking of future expenses in the hope that they become someone else’s problem. At that future point everyone pays more because of a failure to plan.

A better approach is to view the reserve fund as addressing ongoing deterioration. Repairing deterioration on an ongoing basis eliminates the need to think about future expenses. Deferred maintenance, special assessments and lower property valuation concerns are eliminated.

That roof needing replacement is a significant and costly part of the building infrastructure with a limited and predictable life. These are some of the criteria necessary for reserve fund expenditures. The same applies to elevators, windows, common areas, chillers, cooling towers, parking areas, balconies and fire safety systems.

Offsetting ongoing deterioration can cost as much as 40% of a condo corporation’s total budget. Unless 40% of all condo fees are being directed to the reserve fund, that fund may be inadequate to repair ongoing deterioration.

When a reserve fund has enough money to replace each component of the building at the end of its useful life that reserve fund is described as fully funded.

Condo owners may oppose a fully funded reserve fund because it increases monthly condo fees. The hope of these owners is that they no longer reside in the condo when major expenditures are necessary and a special assessment occurs. At that time delayed maintenance and ongoing deterioration costs are more expensive and a responsibility of current condo owners.

Every condo owner relies on their building’s infrastructure so that their home remains livable. When parts of that infrastructure deteriorate, it becomes necessary to repair that deterioration so future owners can benefit from this same infrastructure.