How a PQS-prepared reserve fund study can protect condominium value and reduce risk of excess cost overruns

How a

PQS-prepared reserve fund study can protect condominium value and reduce risk of excess cost overruns

Canada’s inventory of condos is getting older; keeping them healthy requires regular checkups to identify and properly price nonroutine repairs and replacement .

Condominiums are a relatively new home ownership option in Canada . They first became legal in 1967 . By 1970, there were 1,000 across the country . Today there are more than a million, 600,000 in Ontario alone . Just over 13% of Canadians now live in one, whether a high-rise, low-rise, or townhome complex in which dwellings are owned individually while land and common elements are held in joint ownership with others . Condos have become a major – and still expanding – feature of the housing landscape, especially in major urban centres .

Condos, like people, get older . We both have components that wear out and need predictable maintenance, repair, and replacement . Instead of vision, hearing, joints, and skin in humans, it is HVAC, plumbing, roofing, and exteriors, especially window walls and glass curtains, for condos . Regular check-ups help keep us both healthy . A building condition assessment that precedes a reserve fund study is like a check up on projected condo health .

Most provinces have long required condominium corporations (or strata corporations in BC and syndicat de copropriété in Quebec) to keep a reserve fund, money set aside for major repairs and capital expenses expected over the next 20 to 50 years . The funds are exclusively for common property components with a limited useful life . How long a condo can last is a topic for another article . The first generation of condos in Canada are now in their 40s, with next two in their 30s and 20s – when repair or replacements costs can start mounting .

Forewarned is forearmed

A reserve fund study, also known as a depreciation report, enables condominium boards to plan ahead by providing projections about when, and which, items will need major non-routine repair or replacement, and how much they will cost in that estimated future time frame .

The initial study or report is typically revisited every three years, with every other updated study including a site inspection and building condition assessment . Best practices are for condo corporations to update reserve study numbers annually when developing their yearly budget, and to plan for 40 to 50 years for repairs and maintenance, well beyond the 30-years minimum typically required .

In a building condition assessment, a site inspection establishes a baseline condition of all the elements in the complex to inform an estimate of their useful remaining life . The financial analysis that follows examines current reserve funding levels and determines how much money is required to cover the cost of anticipated repairs or replacements .

An effective study will include options for funding that provide for spending on major repairs and replacement as well as reduce the risk of excess cost overruns . Proper funding will protect the building as well as condominium board members .

The risks of underfunding

Some condominiums boards or homeowner associations allocate between 15% to 40% of condo fee assessments to their reserve fund, but that is no guarantee that the reserve will be adequate . There are multiple risks to underfunding . It can compromise structural and functional integrity, as well as the appearance of the building(s) and grounds, the safety of residents, and property values . Even so, research indicates that reserve funds of more than 70% of condo corporations reviewed by a major reserve fund study provider were less than 70% funded . 1

The usual suspects

Roofs are typically first to need replacing at about 20 years, then an HVAC overhaul at 25 years . The longevity of newer energy

efficient systems has yet to be tested . Elevators, which may not need extensive repairs for up to 20 years, may still require extensive maintenance for 10 years before eventual replacement . Plumbing and piping can be expected to last up to 50 years . Glazing, sealing and glass will need replacement within 20 to 25 years .

Expect costs for the glass-sheathed towers that have become almost standard over the past decades to rise sharply as the buildings age . Windows will fog from leaky seals and minimal insulation between glass panes, requiring expensive maintenance or replacement of window and/or curtain walls . That process could start in as few as 15 to 20 years, according to some experts .

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Added to these well-established timelines are new uncertainties connected to expenses for repairing wear and tear due to the use of condos as short-term rentals as well as adaptations that may be required for infection prevention and control in the wake of COVID-19 .

How PQS expertise can add value

There are many providers certified to conduct reserve fund studies . A PQSprepared study has the added advantage of drawing the discipline’s broad and deep knowledge of construction costs, for both materials and labour . The benefit is even stronger when the firm has an up-to-date, country-wide, cost database to inform the cost projections for allocating funds .

The old adage that an ounce of prevention is worth a pound of cure is especially applicable to reserve fund studies, doubly so in uncertain times . Ensuring that a study provides reliable costing estimates needed for adequate funding can make a significant contribution to protecting a condo complex’s long-term value, function, appeal, and safety .

References

1 www.fsresidential.com/ontario/ news-and-events/articles/ understanding-condominiumcorporation-reserve-fund 2 www.huffingtonpost.ca/dan-sbarnabic/condos-lasting_b_ 6956838.html

About the author

Michael Zegarelli, PMP is a Director at BTY with over 18 years of experience in the construction industry . He has contributed to the management and execution of complex facilities management and life-cycle planning for built assets and capital infrastructure across Canada . His expertise includes project management, life-cycle and facility management cost consulting, and risk management services . Michael is an accredited Project Management Professional with a background in mechanical engineering .

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