The Condominium Property Act requires that condominium corporations establish and maintain a capital reserve fund to provide for major repairs and replacement of property and common property owned by the corporation. As buildings age, they need to be repaired and maintained. (For example, the roof of the complex may need to be replaced.)
The same is true of other parts of the common property such as the asphalt in the parking lot, underground utilities, or services and landscaping. Condominium owners must pay for the repair or replacement costs of the property owned by the corporation. However, the reserve fund is not used for repairs or replacements that are done annually.
In order to provide you with a better understanding of this subject matter, we have compiled some of the most critical information on reserve funds below. More on this subject from the Alberta Government can be viewed here.
The Reserve Fund Study
Each condominium corporation will have a different amount in its reserve fund. The corporation determines how much money it should have in its reserve fund by completing a reserve fund study. The reserve fund study is prepared for use by the condominium board, owners and buyers. The Alberta Government does not review it.
If the corporation does not have enough money in the reserve fund to cover significant repairs or incurs other large unexpected expenses, the board may require each condominium owner to pay a special assessment to cover the costs.
Every five years, condominium corporations must conduct a new reserve fund study. Once completed, the board must develop and adopt a new reserve fund plan. Before implementing the plan, it should be presented to the unit owners for their information.
The Reserve Fund Plan
The board must prepare and approve a reserve fund plan based on the reserve fund report, decide what work to do, and the order in which it will be done. The plan must show that sufficient funds will be available from the owner’s contributions to repair or replace the property identified in the report.
Some questions the board needs to consider when developing the reserve fund plan:
- How much money is needed to have sufficient funds in the reserve fund?
- If the report made any financial recommendations were they feasible or practical for the corporation?
- What are the priorities for repair and replacement and what maintenance can be done to extend the life of any of those components?
- What alternatives are available to raise the money needed to pay for the repair and replacement of property?
- What are the practical realities - for the board and the other owners - of these funding alternatives?
- Will one alternative cause more hardship and community disruption than another and is there a strong reason to choose one option over the other?
- Can the board discuss alternatives with the owners at an information meeting before making the final decision?
Good community relations suggest the owners should not be surprised by the board’s final decision. Once the board has made the decision on which funding method to implement it should adopt the entire reserve fund plan and send a copy to the owners. A reserve fund plan will typically cover a five-year period, but may be updated by the board each year.
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