Reserve Funds and Reserve Fund Studies
Differences Between High-Rise and Town-House Reserve Fund Studies in Ontario
From the CCI Huronia Spring 2023 Condo Buzz Newsletter
In Ontario, all condominium corporations are required to have a reserve fund, study, and plan. The fund is a bank account separate from operating that is restricted to replacement or major repair of the condominium common elements (everything owned but outside the unit boundaries). The reserve fund study must be by an independent person from eight defined classes and conducted at least every three years. The plan takes the form of a Plan for Future Funding (formerly called a Form 15 Notice), which is included in status certificates, information certificates, and is delivered to the auditor (if applicable), all owners, potential buyers upon request of a status certificate.
A reserve fund study assesses the current condition of the common elements and determines the expected cost of repairing and replacing these elements over the next 30 or more years (proposed legislative changes are moving toward 45-,and possibly 60-, years). They have become reasonably standardized in their content based on the Act, its Regulations, and various industry best practices; however, there are some key differences between reserve fund studies for high-rise condominiums and townhouse condominiums.
High-rise condominiums typically have a greater number of common elements, including elevators, complex mechanical systems, more shared interior finishes and furnishings, and multi-level underground parking garages. These elements are often more complex and require specialized maintenance and repairs, which can be more expensive than those for townhouse condominiums. As a result, the reserve fund study for a highrise condominium will typically require a very detailed and extensive common element component list and may occasionally need supporting assessments from specialized consultants.
On the other hand, townhouse condominiums typically have fewer common elements, and those elements are often simpler and easier to evaluate. For example, a townhouse condominium may have a single entranceway, a small parking lot, and a playground or other recreational area. As a result, the reserve fund study for a townhouse condominium may be less complex and less expensive than that for a high-rise condominium.
Basically, town-house condominiums are like high-rises on their side with surface parking and stairs.
Another difference between reserve fund studies, due to the construction of their constating documents (declarations, plans, and schedules), for high-rise and townhouse condominiums is the way in which reserve fund contributions are calculated and distributed based on the proportionate share calculations. In a high-rise condominium, proportionate shares are often, though not always, calculated based on the unit's share of the total common expenses using square area metrics. This means that larger units will pay a higher amount into the reserve fund. In contrast, in a townhouse condominium, reserve fund contributions are sometimes, though not always, calculated based on the number of units possibly adjusted for the number of bedrooms forming each unit type.
Overall, while both high-rise and townhouse condominiums are required to have reserve fund studies conducted every three years, the complexity and cost of these studies can vary significantly depending on the type of condominium. High-rise condominiums typically require more detailed and specialized assessments and may have higher reserve fund contributions due to their more complex common elements. Townhouse condominiums, on the other hand, often have simpler common elements and more evenly distributed reserve fund contributions.
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