Reserve Fund Studies, Who, What, When, Why
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Did you know all condo corporations are required to have a reserve fund study done every five years?
So what exactly is a reserve fund and what is its purpose? A reserve fund is set up to provide enough money to pay for the condominium corporation’s responsibilities to maintain and repair the property. Every condominium corporation must have a reserve fund, which the board of directors is tasked to manage (as a common asset) on behalf of the unit owners.
A Reserve Fund Study is required to be done every five years (as per the condominium act), to determine the amount of money that is required for the reserve fund. It is based on estimates for future repairs and replacements of common elements. It is a very good tool to use for budgeting because as you’re doing your annual budget, you can follow the reserve fund study to see how much should be allocated to the reserve fund each year.
The study will tell you which items need to be replaced and when (based on their expected life span), and is the recommended amount that should be set aside to avoid unexpected special assessments.
Examples of major capital expenditures that the reserve fund could cover include; roof repairs, exterior siding, heating, air conditioning, plumbing, electrical systems, elevator, asphalt parking lots, sidewalks or roads, etc. To determine what your specific condominium is responsible for will be clearly outlined in the declaration.
So what happens if you don’t have enough money when the expenditures happen? Well, if your reserve fund is not ‘fully funded’ and follows the study’s recommendation, then there may be a special assessment (commonly known as a cash call) where each condo owner will need to kick in additional funds.
At Schinkel Properties, we help Condominium Corporations through this process, and when it comes time for major capital repairs, we will shop around for the best pricing. For example, a reserve fund study might estimate the cost of common window repairs at $50,000, however, when it comes time to actually repair the windows, Schinkel Properties will shop around and try to find a deal for less than what was budgeted, and save the condominium corporation money.
by Audrey Harder, GM – Property Management