Condominium Reserve Fund Studies – A Snapshot

A reserve fund report is a written document which outlines the findings from the reserve fund study which involves a physical inspection of the condominium’s depreciating property. Condominium corporations must establish and maintain a reserve fund to cover the costs of major repairs and replacement of the corporation’s real and personal property, common property and managed property. To determine how much money a condominium corporation should have in its reserve fund, a reserve fund study, report and plan must be completed by the corporation every five years. Reserve funds are held in a separate trust account and is not to be comingled with the corporation’s operating funds or any other money. Unit owners and purchasers should understand the importance and content of the reserve fund study, reserve fund reports and the reserve fund plan.

Although there is a requirement to have these done minimally every five years, they should be reviewed and updated annually to reflect any assumption changes and/or incidents that affect the projections. An example may be the envelope siding was replaced early due to damage from a severe hail storm. The purpose of a reserve fund study is to provide cost estimates of various reserve components, subject to major repairs and/or replacement over its anticipated service life, to estimate the funding required for such major repairs and replacement in accordance with the provisions of the Condominium Property Act. The report acts as a practical guide to plan budgets and preventative and ongoing maintenance programs taking a business approach to reserve fund management.

To recap, the reserve fund report:

• identifies reserve components, its quality, anticipated life span and remaining expected life based on its condition and quality
• provides replacement cost estimates including removal and re-installation
• factors in inflation and interest rates
• based on the above, it then calculates current reserve fund contributions required and to be invested in interest bearing securities

The report includes a Benchmark Analysis which is a schedule of reserve fund estimates, and a 30-year reserve fund cash flow projection and deficiencies analysis.