Reserve Fund Studies: Opportunities for REIC Members

RESERVE FUND STUDIES

By Michael LaPorte, CRP

As condominium ownership has surged throughout Canada over the past five decades, legislation and regulation over this period has been slow to respond fully to the needs of condominium and strata owners. In particular, the legislation pertaining to the reserve funding requirements for the proper repair, replacement, and renewal of the shared components of a condo or strata corporation have been neglected. However in several provinces in Canada, these regulations are beginning to have some teeth creating opportunities for REIC members.

A reserve fund study, put into layman terms, is a plan for the long term funding of the common components of a condominium or strata corporation. This leads to the question, what are the “common components”? Although this may be defined in different ways through various provincial legislation and regulation, the components are generally those which: “are collectively the condo or strata corporation’s responsibility, and which require repair, renewal, or replacement less often than annually, but before the end of life of the building(s).” Examples may include the roof, windows, exterior paint, interior common area finishes, elevators, mechanical/plumbing systems, and any other components which are the responsibility of the condo/strata corporation collectively, rather than the owners individually, to fund.

So one might ask, why is legislation and regulation important with respect to reserve fund studies, shouldn’t the owner’s be able to make their own funding decisions without the government getting involved? The challenge for owners is that there is no easy way to know what the long term reserve requirements are for a condo/strata corporation without going through the detailed steps of conducting a reserve fund study.

Further, without the reserve fund study, there is a tendency for condo/strata corporations to minimize regular reserve fund contributions, which can dramatically increase the risk of special assessments, and/or significant increases in regular reserve fund contributions from the owners in the future. Therefore, the reserve fund study provides one-part consumer protection and one-part valuable information with regards to risk to the current homeowners. Provincial governments have come to realize that legislation and regulation in this regard is not only in the public interest, but in the interest of condo/ strata homeowners as well.

In conclusion, condominium/strata legislation and regulation with respect to reserve fund studies has been moving towards greater compliance requirements, while the number of condo/ strata corporations continues to grow as a percentage of home ownership in Canada. This will increase the need for expertise in the preparation of these complex reports, and no other organization is as prepared to meet this need other than REIC and its Certified Reserve Planner (CRP) designated Members. •

Michael LaPorte, CRP is with NLD Consulting, Reserve Fund Advisors. Email: mlaporte@reserveadvisors.ca