Reserve Funds

June 5, 2025 Published by Toronto and Area Chapter - By Liam Grey

Securing the Future

From the Spring 2025 issue of CCI Toronto Condovoice Magazine.

A guide to evaluating and managing condominium reserve funds

Condominium Boards in Ontario are tasked with ensuring the long-term financial stability of their properties. One of the primary tools at their disposal is the reserve fund, a pool of money set aside for major repairs and replacements. Effective planning, regular inspections, and proactive maintenance are critical to maintaining the building’s infrastructure while safeguarding the financial interests of all unit owners. This article explores how boards can evaluate their reserve fund planning, execute necessary repairs, and monitor the fund’s balance to ensure long-term adequacy.

Understanding the Reserve Fund

Under the Condominium Act, 1998, every Condominium Corporation is required to establish and maintain a reserve fund to cover the cost of major repairs and replacements of common elements and assets. The Act mandates that corporations conduct a reserve fund study every three years. This study provides a professional estimate of future repair and replacement costs and recommends how much should be contributed to the fund annually.

The reserve fund is distinct from the operating budget, which covers day-to-day expenses like utilities and janitorial services. The reserve fund is used exclusively for capital expenditures such as roof repairs, HVAC replacements, and window replacements. Without careful management, the fund may be insufficient when repairs are needed, leading to special assessments or deferred maintenance, both of which negatively impact property value.

Evaluating Reserve Fund Planning

Evaluating reserve fund planning involves several important steps:

1. Review the Reserve Fund Study: The reserve fund study serves as the foundation of planning. It is conducted by a qualified engineer or planner who assesses the property’s common elements and estimates future repair costs. The study includes a schedule for repairs and recommends the annual contributions necessary to maintain sufficient funds.

The board should review the reserve fund study carefully, ensuring it reflects the current condition of the property. Factors like inflation, material costs, and labour shortages should be accounted for. If the study is outdated, adjustments or updates should be made.

2. Compare Actual Contributions vs. Study Recommendations: The board must ensure actual contributions to the reserve fund meet or exceed the study’s recommendations. This helps avoid funding shortfalls. If contributions are lower than recommended, the board should investigate the reasons and make necessary adjustments.

Contributions to the reserve fund come from monthly common element fees collected from unit owners. Striking a balance between affordable fees and sufficient funding is essential for the board.

3. Monitor the Health of the Reserve Fund: The board should regularly review the reserve fund’s balance and upcoming repair needs. A projection model can be created to track expected withdrawals for repairs and incoming contributions over the next few years. This proactive monitoring allows for early identification of potential shortfalls, enabling timely adjustments.

4. Assess Historical Repair Costs: Historical repair data can provide valuable insights into the accuracy of the reserve fund study. If past repairs consistently cost more than estimated, the board may need to update the study’s figures.

5. Ensure Regular Maintenance and Inspections: Implementing a maintenance program may be an additional expense for the corporation, but it provides significant long-term financial benefits. Regular inspections and maintenance help identify deficiencies before they become expensive disasters, reducing the likelihood of unexpected major repairs that can deplete the reserve fund. By addressing issues early, boards can better manage repair schedules and prevent costly emergencies.

Best Practices for Planning and Executing Repairs

1. Prioritize Repairs Based on Urgency and Impact: Some repairs, like roof or electrical system repairs, are more urgent than others. The board should prioritize repairs that affect safety and the building’s structural integrity. Non-urgent repairs can be scheduled later if the reserve fund is under pressure.
2. Obtain Multiple Bids for Major Projects: When planning major repairs, obtaining multiple bids ensures the board gets competitive pricing and can compare different approaches. Hiring contractors with experience in condominium buildings helps avoid issues with the quality of work. Transparency in the bidding process is also key to maintaining trust with unit owners.
3. Schedule Repairs During Off-Peak Times: Repairs scheduled during offpeak times, such as early spring or late fall, often come at lower costs as demand for contractors is lower. Interior work may be more affordable and less disruptive if scheduled when many residents are away, such as during holidays.
4. Create a Contingency Plan: Unplanned repairs can arise due to extreme weather or equipment failures. A contingency plan should be in place, including a portion of the reserve fund allocated for emergencies. Having a line of credit available for unexpected expenses is another option.
5. Communicate Regularly with Owners: Transparent communication with owners regarding the status of the reserve fund, upcoming repairs, and any changes to fees is crucial. Providing regular updates via newsletters or meetings fosters understanding and support for the board’s decisions.

Monitoring the Reserve Fund

Monitoring the reserve fund requires ongoing vigilance. The board should regularly review the balance and future repair needs, ensuring that contributions are being made as planned. It’s also important to be prepared to adjust contributions if inflation or other factors drive up repair costs. Regularly updating the reserve fund study ensures that the board can make incremental adjustments rather than resorting to large fee increases or special assessments.

Evaluating the reserve fund and planning for repairs are key responsibilities of a Condominium Board. By thoroughly reviewing the reserve fund study, prioritizing necessary repairs, implementing regular maintenance plans, obtaining competitive bids, and maintaining transparent communication with owners, boards can ensure the reserve fund remains healthy and repairs are carried out in a timely and cost-effective manner. Proper reserve fund management not only protects the building’s infrastructure but also contributes to the financial stability and value of the condominium.

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Liam Grey, OLCM-L, is a condominium management professional and Agricultural Engineer with a Master’s degree in Soil Physics. He currently works at GPM Property Management Inc. With experience in financial management, regulatory compliance, operational processes, and stakeholder communication, Liam works closely with condominium boards to support effective decision-making and long-term planning. Leveraging his analytical background, he applies data-driven approaches and predictive modeling to optimize financial forecasting, planning, and resource allocation. His analytical skills and diverse background contribute to efficient property management and community engagement.