Reserve Funds

January 26, 2026 Published by Golden Horseshoe Chapter - By Kevin Shaw

Reserve Fund Studies – Hot Topics

From the Volume 26, Winter 2026 issue of the CCI GHC Condo News Magazine

Reserve Fund planning has become increasingly complex, with two critical issues dominating discussions among condominium boards and property managers: managing inflation and establishing clear guidelines for adequate funding. These factors are essential to ensuring financial stability and protecting long-term asset value.

Inflation

Inflation impacts Reserve Fund planning in two key ways:

• Current repair and replacement costs
• Projected inflation rates for future expenditures

Recent cost increases have created significant cashflow shortfalls for many condominiums, largely because previous studies did not anticipate the sharp price escalations of recent years. It is imperative that these increases be incorporated into new Reserve Fund Studies and reflected in current cost calculations. When this is done accurately, future inflation assumptions can remain moderate, as rates have stabilized since their peak in 2022.

To determine appropriate inflation rates, planners should review reliable sources:

Consumer Price Index (CPI)

CPI is a statistical estimate of the level of prices of goods and services bought for consumption purposes by households. It is calculated as the weighted average price of a market basket of consumer goods and services. As it stands recently, Statistics Canada indicated that the Consumer Price Index (CPI) has fluctuated between 1.9% and 2.2% for 2025. This is much better than the 6.8% rate peak we experienced in 2022. While CPI is generally not the direct index being used by Reserve Fund Planners, it remains an important benchmark.

Building Construction Price Index (BCPI)

BCPI is a quarterly series that measures change over time in the prices that builders/contractors charge to construct new buildings. Statistics Canada indicates that construction costs for new residential buildings rose approx. 3.3% in 2025. Although BCPI does not directly reflect repair or restoration costs, it is a useful indicator for monitoring market trends.

CAO – Report on Reserve Fund Survey Findings

An interesting report was issued by the Condominium Authority of Ontario (CAO) in September of 2024 that provided a series of findings from surveys conducted with over 700 condos in Ontario regarding Reserve Funds and their importance.

The study found that the majority of reserve fund studies completed between 2021 and 2023 were using an average of 1.1% to 3% for inflation and that inflation in studies was tracking upwards in the later years (many as high as 6%). This indicated planners were aware of rising costs but stakeholders were all significantly impacted by the unprecedented rise in prices.

Another clear finding was that overall inflation related to construction costs was outpacing the Consumer Price Index and that this should be taken into account for Reserve Fund Studies.

Professional Engineers of Ontario

The Professional Engineers of Ontario (PEO) has a guide for Engineers titled “Guideline for Conducting Performance Audits and Reserve Fund Studies” (published in 2021). As pointed out within the guide, there are no published indexes that relate directly to the estimated cost of restoration of existing buildings. The PEO therefore recommends that “practitioners use their judgment and knowledge of the marketplace in selecting an inflation rate”. They further indicate that the use of the StatsCan BCPI for residential buildings may be deemed reasonable although they recognize this index reflects new construction and not the restoration type work typically included within Reserve Fund Studies.

Adequate Funding

The Condominium Act requires that all Condominium Corporations conduct periodic studies to determine “whether the amount of money in the reserve fund and the amount of contributions are adequate to provide for the expected costs of major repair and replacement of the common elements and assets of the corporation”. That appears straight forward except the word “adequate” was never defined and it has been left to planners to interpret how to incorporate this concept into their Studies.

While there may be different interpretations of adequate, it is generally accepted in the industry that this would mean:

• No negative closing balances within the 30 year Study period.
• Annual contribution increases should align with, or not exceed, the assumed rate of inflation.

Back in 2013, a wide review of the Condominium Act was undertaken with a panel of industry experts and a publication was released through Canada’s Public Policy Forum. The report was sub-titled “Condominium Act Review - Stage Two Solutions Report”. In it, several recommendations were made for changes to the Act that would assist with clarifying some of the questions raised over the years regarding Reserve Fund Studies.

The policy review recommended that the term “adequate” needs to be clarified in order “to prevent disagreements and the heightened risk of underfunding”. The review also recommended that the “year-over-year percentage change in total contributions to the Reserve Fund should be no greater than the assumed inflation rate”. It further advocated that should total contributions need to be higher than the assumed inflation rate, they should only be applied in the first three (3) years of the Study. I think those latter couple of recommendations can most easily be incorporated into all Studies.

As highlighted in the PEO guideline for Reserve Fund Studies, “it is generally accepted in the industry that the goal of an ideal reserve fund study is that the rate of escalation of contributions should not exceed the assumed rate of inflation.” Where this is not possible (as a result of total contributions being less than projected expenditures), It further states that “it is reasonable to inflate contributions at a greater rate than inflation for the period of time until the next study will be completed (three years), after which time the contribution rate should match the rate of inflation”. This mirrors the recommendations made through the Public Policy Forum and makes sense as a reasonable approach.

Conclusions

Boards and property managers must work closely with Reserve Fund planners to ensure studies reflect current costs and realistic inflation assumptions. Discuss strategies for managing contributions, particularly if increases beyond inflation are required to maintain financial health. Proactive planning today will safeguard condominium assets and prevent costly shortfalls in the future.

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Kevin Shaw is a Principal with Cion - Engineers and Building Scientists and is responsible for all operational aspects of Cion’s building science services. Kevin has over 25 years of experience in building evaluation and rehabilitation. Kevin holds his LCCI designation with CCI and is an active member of the Business Partners Committee of the Golden Horseshoe Chapter.