Condo Reserve Fund in Ontario: What It Is and How It Works

If you are buying or already own a condo in Ontario, you will hear about the reserve fund in status certificates, budgets and board notices. It can feel abstract, but it affects your monthly fees and the chance of a surprise bill.

This article explains in plain words what the fund is for, who pays into it, and what the Condominium Act, 1998 requires the corporation to do to keep it healthy.

What the reserve fund is for

The reserve fund is money the condo corporation sets aside for big, expensive jobs down the road. Under the Condominium Act, 1998, it may be used only for major repair and replacement of the common elements and assets of the corporation.

That means it is not a general account for everyday costs. Routine items such as cleaning, building maintenance and management are paid from the common expense budget instead.

Who pays into it

Owners pay into the reserve fund through their monthly common expense fees. The board decides how much of the budget goes to the fund and may need to raise contributions to keep it adequate.

Your share of the common expenses is a percentage set in the declaration and may vary with unit size. For example, a unit with a 5% share of a $1,000 monthly budget pays $50 a month.

Special assessments and chargebacks are ownership costs separate from your regular monthly fees. A board can levy a special assessment through common expense fees without owner approval, for reasons that include unforeseen expenses, a major repair that exceeds its budget, and litigation costs. Your share of a special assessment uses the same percentage as your common expense share, and owners must pay it.

If a special assessment goes unpaid, the corporation has a lien against the unit that covers the unpaid amount, interest, and reasonable legal costs and expenses. There is an exception for buyers: in a court decision the Condominium Authority of Ontario describes, a buyer was exempt from their share of a special assessment because the status certificate had not clearly disclosed that assessments might be levied. Whether that could help in your situation depends on the facts, so it is worth confirming with a lawyer.

Reserve fund studies

The corporation relies on studies to know how much the fund needs. The rules differ depending on the stage of the building.

• A newly registered corporation must complete a Class 1 (comprehensive) study within the first year after the declaration and description are registered, and the provider must physically examine the property.
• After that, updated studies are required at least every three years, alternating between Class 2 (with a site inspection) and Class 3 (a review of records and interviews, with no site inspection).
• Studies must be done by qualified professionals, and O. Reg. 48/01, s. 32 sets out who can conduct one.

A study has two parts. The physical analysis lists components expected to need major repair or replacement within at least 30 years. The financial analysis includes a funding plan projected over at least 30 consecutive years. A component is listed only if its replacement cost is at least $500.

What the board must do after a study

The plan must make the fund adequate by the fiscal year after the study is completed. The notice includes a summary of the study, a summary of the plan, and a statement of any areas where the plan differs from the study. The study, plan and notice also go to the auditor.

Directors who depart from the study provider's professional advice may face liability, so boards are urged to be cautious about doing so.

What to do next

• If you are buying, ask for the status certificate and read the statement on the most recent reserve fund study and the state of the fund.
• Read the latest study and the Notice of Future Funding, and check whether the plan differs from the study.
• Look at how fees have changed and whether the board expects to raise contributions.
• Remember that a major repair that exceeds its budget can lead to a special assessment, which the board can levy without owner approval.
• Have a lawyer review the documents if the fund looks thin or the numbers are unclear.

Frequently asked questions