Reserve funds for condos are like savings accounts for repairs.
Understanding Condo reserve funds in Alberta
Many people who live in a condominium may have heard the term reserve fund in Alberta. A large part of those people do not fully understand the nature of a reserve fund and what can and cannot be done with those funds. This issue comes up so often that there have even been lawsuits fighting over reserve funds should be used for. If you need further information or help with a problem with your Calgary (and area)condominium, call the lawyers at Kahane Law Office at 403-225-8810.
What Is A Condominium Reserve Fund?
A condominium reserve fund is a fund of money maintained by a condominium corporation. With each monthly condo fee payment, a portion of the payment is allocated to the day to day condo expenses. Another part of the condo fee is set aside to be added to the condo reserve fund. These funds are used to repair, maintain and replace:
The real property owned by the condo corporation,
The personal property owned by the condo corporation, and lastly
The common property owned by the condo corporation.
Reserve Funds Studies
In Alberta Reserve funds are require every 5 years. The Condominium Property Act and Regulations sets out this law. There are advantages to having a fund study done every 5 years. In this way, the owners of a condominium corporation are able to be confident in the financial health of the condominium. The study looks at the capital assets of the corporation (the building and all its components). It then breaks down the longevity of each component, and the anticipated cost to maintaining it over 25 years. The reserve fund study creates a budget for maintaining the assets of the condo corp.
Study Content Basics
At a minimum, each reserve fund study will cover the following basics:
A specific line item for each capital component of the condominium that will require repair or replacement.
A spreadsheet outlining the cost of replacement of each item. This includes the present day cost.
A spreadsheet outlining each item with its then current age. It also states the expected date of replacement (item lifespan).
A section hat anticipates the assumptions used for inflation
A timeline setting out how much is in the current reserve fund, how much is added with annual income to the fund, the condo spending, any interest and the closing balance.
The one limitation of a reserve fund study is that there are often unexpected problems that need to be dealt with and the anticipated lifespan of a capital asset is not always correct. The study preparation needs completing by a trained professional. The board lacks the ability to do one “in house”.
What If There Is Not Enough Money In The Reserve Fund
A condominium board facing a situation where there is not enough money in a reserve fund has two choices. If time allows (ie if there is not a big repair expense needed immediately), the board can decide to increase the monthly condominium monthly condo fee. The board then allocates a greater amount to be added to the fund each month. The other option is for the board to decide to have a special assessment. A special assessment can be used to top up a fund. The special assessment can also be used to pay for a significant repair or replacement expense. In this way, the reserve fund is not depleted.
If You Fail To Pay A Special Assessment
Failure to pay a special assessment is like failing t pay your mortgage. The condominium corporation can put a caveat on your title, charge interest, or even go through a process like a foreclosure to where the courts force the sale of your condo unit. Alternatively, the condo corporation can go to your mortgage company. Your lender will treat this like a missed mortgage payment and can start to foreclose, once they pay the special assessment for you. This also affects your credit rating so ensure that you stay current with your payments.
Reserve Fund Lawyers in Calgary
Make sure that your condo is properly run. The requirement for these funds stems in law. The condominium reserve fund lawyers at Kahane Law Office in Calgary, Alberta understand funds and how they protect condo owners. Protect yourself with lawyers who understand the law. Affordable low flat rates and exceptional service. CONNECT NOW. Please call us at 403-225-8810 or toll-free at 1-877-225-8817 or email us directly here.