How to Read a Condo Reserve Fund Study Before Buying in Ontario

You have been handed a reserve fund study for a condo you are thinking of buying. It is long, full of tables, and the listing agent says the building is in good shape. What you really want to know is simple: will this building have the money to fix itself when the time comes?

This article walks through what a study is, what the different classes of study mean, and what to look for in the funding plan. It explains how things generally work in Ontario. A lawyer can read the actual documents for your building and tell you what they mean for you.

What the reserve fund is for

Under the Condominium Act, 1998, a condo corporation's reserve fund may be used only for major repair and replacement of the common elements and assets of the corporation. Think roofs, elevators, parking garage membranes and similar big-ticket items, not everyday cleaning.

Owners pay into the fund through their monthly common expense fees. The board decides how much goes into the fund and may need to raise contributions to keep it adequate. That is why the study matters to you as a buyer: it shows what the board expects to spend and whether contributions are keeping pace.

Which class of study you are holding

Some people call these Type 1 and Type 2 reports. The Condominium Authority of Ontario uses the word class, so you may see Class 1, Class 2 and Class 3. A new condo corporation must complete a Class 1 (comprehensive) study within the first year after the declaration and description are registered, and a Class 1 study requires the provider to physically examine the property.

After that first study, the corporation must do updated studies at least every three years, alternating between Class 2 and Class 3.

A Class 3 study relies on records rather than a fresh look at the building, so it is worth knowing which kind you have and how old it is.

What is inside the study

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

Studies must be done by qualified professionals, and O. Reg. 48/01, s. 32 sets out who can conduct one. Check the cover page to see who prepared it and when.

What to look for and what it signals

• The date of the study and its class, so you know how current it is and whether it involved a site inspection.
• The funding plan over at least 30 years: does it show contributions rising, holding steady or falling?
• Big components coming due in the next several years, such as the roof or elevators, and whether the plan sets money aside for them.
• Whether the board has responded. It must review the study within 120 days of receiving it and propose a plan that makes the fund adequate by the fiscal year after the study is completed.
• The Notice of Future Funding of Reserve Fund sent to owners, which includes a summary of the study, a summary of the plan and a statement of any areas where the plan differs from the study.
• Any gap between what the study recommends and what the board actually adopted. Directors who depart from the provider's professional advice may face liability, so boards are urged to be cautious about doing so.

No fixed percentage tells you whether a fund is healthy, so avoid rules of thumb you find online. The study and the plan, read together, are the better guide.

What to do next

Ask for the most recent study, the Notice of Future Funding and the board's plan, then request the status certificate. It must be provided within 10 days and may include a statement on the most recent reserve fund study and the state of the fund, any arrears on the unit, and special assessments levied since the current budget and why. Whatever it includes or leaves out binds the corporation.

• Put the study date, class and provider on one page of notes.
• Highlight the big components due soon and the plan for them.
• List anything you do not understand and take it to a lawyer before your conditions expire.
• Compare the study with the status certificate to see whether they tell the same story.

Frequently asked questions