Repairs, Maintenance and Renovations
September, 30 2021 Published by London and Area Chapter - By Lyndsey McNally
The Importance of Annual Capital Repair Planning
From the September 2021 issue of the CCI London CCI Review
Reserve fund planning does not stop when you receive your Reserve Fund Study (RFS). A well prepared RFS provides you with guidance about how long your building components should last, and how estimated costs for major repairs and replacement will impact your savings strategy over a minimum 30-year period. It is an extremely important planning tool, and the Condominium Act, 1998 requires that your RFS must be updated every three years. But things change as you begin to complete projects, and three years is a long time when you’re dealing with expensive building components. Planning to execute capital repairs and actively managing your (cash) reserve funds is something that should be done every year, or more frequently in years where you have a lot of spending activity.
Annual capital repair planning doesn’t have to be complicated, but you should apply some critical thinking. What’s most important is the quality of the information that you work with. A well thought out annual planning process can also help to minimize conflict in the board room, since expenses will be prioritized with as much information as possible going into the decision-making process. How do you do this practically?
First, get organized. Each condominium corporation is unique, and while you may have some other specific information to consider the following is a good starting place:
- A list of RFS estimates for projects for the prior year, current year, and upcoming year.
- A summary of actual expenses from the prior year.
- Complete a full visual inspection of the property. What work do you see that needs to be done?
- Review your operating expenses. Does anything point to a major repair being required (escalated plumbing costs, repeated elevator failures, etc.)?
- Details of your cash position. Is all your cash available, or do you have investments? If some funds are invested, when will those investments mature?
- What is the projected minimum balance in the RFS?
Next, discuss and prioritize. Here are some very simple sample tables that can help you to review the information you’ve collected:
What do the above tables tell me about planning for the current year? The corporation should immediately take steps to begin planning the boiler replacement. It is planned near-term, and there could be operating cost savings.
The RFS tells us the garage will need major repairs soon. The corporation spent a small amount on patch repairs last year which may extend life, and the garage looks to be in good condition. The garage is a significant expense for the corporation (and it may be structural in nature), and so it is worthwhile to have an engineer complete a condition assessment. If the result of the assessment is that there is a significant difference compared to the RFS in timing or costs, it would make sense to have a financial update of the RFS completed.
Work is needed on the roadways. Patch repairs should be considered at a minimum for health and safety, but the work could advance. Because timing of projects is changing, it would be a good idea to complete a cash flow review to make sure this will not result in a negative balance.
- The current investments need to be reviewed and considered to have cash available for the garage project.
- There is a slight variance between RFS estimates and actual. Could the corporation consider transferring some excess operating surplus (if available), or slightly increasing fees to boost the reserve fund balance A minor change now could prevent a large, unexpected increase with the next RFS update.
This sample condo has some work still to do, but they are on their way. I would recommend that this review be completed in November or December annually, regardless of your corporation’s year-end. The late fall/early winter is the ideal time to work on planning for the spring construction season. If the review is not aligned with your year-end take another look at the plan when budget time comes around.
A common concern in many condominium corporations is transparency. You can also use the details of this planning process to communicate with owners effectively about their financial position and what they can expect in terms of upcoming construction around their homes. An open planning process, displaying the proper due diligence can go a long way. You may do this regularly at the AGM, with written communications through the year, or call a special meeting of owners if there are items of significance within the plan that need to be discussed in detail.
Now, not only are the board and owners satisfied that the right decisions are being made, but property management also has clear direction (and was hopefully an active participant in the process). All of the people affected by these major decisions are set up for success because expectations are clear. But, construction projects are full of surprises. Remember to adjust along the way.
What if your review raises alarms? DON’T PANIC. Engage your experts to help you develop a plan. Communicate to your owners early and often about what’s happening. And finally, be realistic about your options. Just like with your annual review, significant variances from your plan should be approach with critical thinking, open communication, and considering all the facts. –LM
Lyndsey McNally, OLCM [LM1] joined the CWB Maxium Financial team in 2020 with an extensive background in the condominium sector, having worked with condominium corporations in the GTA since 2002. Lyndsey is a licensed condominium manager and in 2017 was selected as property manager of the year by the Association of Condominium Managers of Ontario.
Lyndsey works exclusively with condominium corporations, property managers and other condominium stakeholders to develop and implement customized financing solutions.
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