When I tell people what I do for a living, I explain first that I love my job. It incorporates so many different aspects of being outside, doing tons of math, talking to people and educating them. What do I do? I prepare building component and financial audits for condominium corporations. In short, I do Reserve Fund Studies. I get questions that are both simple and complex and will attempt to address some of the main ones.
A Reserve Fund Study is a document that assesses all of the common property and the current funding of a condominium corporation. The study should make recommendations for future funding. When assessing common property, quantities and condition should be determined.
Reserve Fund Studies are required by section 38 of the Alberta Condominium Property Act (the Act), which states:
A corporation shall, subject to the regulations, establish and maintain a capital replacement reserve fund to be used to provide sufficient funds that can reasonably be expected to provide for major repairs and replacement of
a) any real and personal property owned by the Corporation, and
b) the common property
where the repair or replacement is of a nature that does not normally occur annually.
In layman’s terms the Act requires that an account be created to provide funding for the replacement or major repairs to all common property for which the corporation is responsible. In order to create this account, money must be deposited on a regular basis to ensure that funds are available when required. This protects the investment of every owner in his or her property. When replacement of common property components is deferred for financial reasons, the individual units will suffer devaluation of the property.
Some reasons for including section 38 in the Act are:
When a condominium corporation contracts to have a Reserve Fund Study done, the steps below should be followed:
Most providers will not only attend a meeting to discuss the report with the Board and to answer any questions, but also will attend the Annual General Meeting (AGM) to discuss the report with the unit owners as well.
Information that should always be in a Reserve Fund Study includes, but is not limited to, the following:
Additional information that the Study may include is:
In order to get a useful Reserve Fund Study, it is important for the Board to understand what they want out of it. Boards should use the study as a planning guide. This means choosing the right provider. Studies vary from provider to provider. Providers have different funding philosophies as well as financial planning ideas. Questions the Board should ask providers when getting a proposal are:
The answers to these questions will assist a Board in determining which provider will best fit their needs. Cost should not always be the deciding factor when choosing a provider.
The Alberta Condominium Property Act states that a qualified person must do the study. A qualified person is someone who has knowledge and experience in assessing depreciating property, the operation and maintenance of the property, and cost associated with replacement of the common property. The Act does not say that you must have an engineering company perform the study. Property Managers, accountants, real estate agents, and adjusters bring their own unique experience to the development of a Reserve Fund Study.
Generally, a Reserve Fund Study should be completed every 5 years. However, since the Board should use the study as a planning tool for operating the corporation, it can be done more often than every 5 years.
New corporations must complete a study within 2 years of its initial development. If the corporation is a conversion of previous rental units, then the study must be completed prior to any units being sold.
There are no condo police to fine a Board when they do not complete a study every 5 years. However, neglecting to have a study updated could cause the following:
A Reserve Fund Study is a tool that the Board uses to help manage a corporation and its assets. Therefore, it is important to find a provider who will produce a document that the Board can use.