Questions (FAQ)

 

What is the difference between a reserve fund study, a reserve fund report, and a reserve fund plan?

The study is a written description of the depreciating assets of the Condominium that will require major repair or replacement within 30 years.  The study should detail the chronological age of each asset, the expected lifespan of each asset (under normal conditions), the current condition of each asset, and an estimate of the cost to repair or replace each asset.  The study also lays out a long-term budget showing how much cash will be required, and when, and what level of contributions will be required for the fund to remain solvent.

The report is the signed report submitted to the Condominium Board once the study has been completed.  The report outlines the findings of the study, the qualifications of the study preparer, the relationship of the preparer with the Condominium Corporation, as well as any other matters the preparer feels is relevant to the Board.  When most people refer to a "reserve fund study", they are in fact referring to both the study and report.

The plan is effectively a 30-year capital spending budget document.  A reserve fund planner will typically recommend one or two plans to ensure the reserve fund is adequately funded, however, the Condominium Board is ultimately the party who decides what funding strategy the Condominium adopts.  As per Section 23(4) of the Alberta Condominium Property Regulation, the Board "must, after reviewing the reserve fund report, approve a reserve fund plan setting forth the method of and amounts needed for funding and maintaining the reserve fund."

To put the whole thing in chronological order:

  1. The reserve fund planner prepares a written study of the depreciating assets of the Condominium,

  2. The planner prepares a written report outlining the findings of the study and submits the document package to the Board,

  3. The Board, after reviewing the study and report, passes a motion adopting a plan to ensure the Condominium's reserve fund is adequately funded.

 

 

How do you decide what items are included in the reserve fund study, and which are left for the day-to-day operating budget?

Two things guide us here.  The Alberta Condominium Property Act refers to "...major repair and replacement... that does not normally occur annually."  So grass cutting, snow shoveling, light bulb replacement, and the like are not included because we know that they will be needed every year.  Second, we deal with the word "major".  Here we consider the size of the expenditure relative to the overall budget of the Condominium.  For instance, the replacement of a number of precast paving stones at a total cost of $800 would be a major expense for a four-plex and should be included in the reserve fund calculations, whereas the same work carried out at a 100-unit apartment building would be considered too small to bother going into the reserve fund.

 

 

What are the penalties for not having a reserve fund study done?

The penalties are only those inflicted by the marketplace.  There are no "Condo Cops" checking on condominium corporations, however there are a growing number of knowledgeable real estate agents and lawyers who are asking questions on behalf of their clients.  Far more effective than any governmental enforcement agency is the anger of an owner who can't sell his unit because the Condominium's Board has not commissioned a proper reserve fund or has not adopted an adequate reserve fund plan.

 

Who can perform/prepare reserve fund studies?

In Alberta, the Condominium Property Act refers to a "qualified person", as defined by Regulation 21(1)(c).  In cases of properties with not more than 12 units, the Condominium Corporation may elect (by special resolution) to carry out the functions of a "qualified person" and prepare their own study.