FUNNY MONEY
Who decides how our reserve fund is rebuilt?
QAOur condo conducted its first reserve fund study and received recommendations for contribution increases to the fund. Instead of following the recommendations, our board of directors presented a plan to fund the increase over 17 years, rather than over two years as per our reserve fund study indicated. Does the board of directors have the mandate or authority to override the recommendations of the reserve fund study? I assume your property is fairly new since reserve fund studies have been mandatory only since 2001. According to the Ontario Condominium Act, reserve fund studies must be completed every three years. Contributions to your reserve fund account must be in amounts that will provide sufficient funds for current and future major repairs and replacements. Contributions are based on the life expectancy of common element components.
Each condo board does have the authority to propose a reserve fund plan that differs from that of the actual reserve fund study. However, they must proceed with caution and their plan must meet all the requirements of a reserve fund study. It sounds like a bit of a stretch to plan increases over 17 years when your reserve fund study indicated an increase over the next two years. The corporation’s auditor is also required to include in the annual audit report that the reserve fund plan noted in the financial statements does not reflect the recommendations of the reserve fund study. This could raise concerns for prospective buyers who read this information in the Status Certificate.
Reserve fund accounts can also become depleted because of an unexpected major repair or replacement that occurred prior to the reserve fund study. The board would have to take immediate steps to replenish the fund. This could be in the form of a special assessment or significant condo fee increases.
Reserve fund studies are in place to protect owners and prospective buyers. It would be wise for your board of directors to review the plan very carefully in order to ensure it is foolproof and in tune with the original recommendations. Directors are voted into office to make professional and accurate decisions on behalf of the owners. Those decisions could either make or break property resale values. Directors could also be held liable if they do not follow the terms of the Condominium Act of Ontario.