- The reserve fund can be used only for major repair and replacement of common elements and assets, and owners fund it through monthly fees.
- After a reserve fund study, the board must propose a funding plan within 120 days that makes the fund adequate by the fiscal year after the study.
- If money runs short, a board can levy a special assessment without owner approval, and owners must pay their share.
You may have heard that your condo's reserve fund is low, or you may have seen fees rise and wondered why. A weak reserve fund is one of the most common reasons owners face higher monthly costs or a sudden bill.
This article explains what the fund is for, how Ontario condo corporations are expected to keep it healthy, and how a shortfall can reach your wallet. It also covers practical steps you can take as an owner.
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 of roofs, elevators and parking garage work, not everyday cleaning.
Owners pay into the fund through their monthly common expense fees. The board decides how much goes to the fund and may need to raise contributions to keep it adequate. Your fees also cover maintenance of the common elements and services such as cleaning, building maintenance and condo management.
How the reserve fund study and funding plan work
A reserve fund study is the tool used to judge whether the fund is enough. It has a physical analysis, which inventories components expected to need major repair or replacement within at least 30 years, and a financial analysis with a funding plan projected over at least 30 consecutive years. A component is included only if its replacement cost is at least $500.
Studies must be done by qualified professionals. A new corporation must complete a Class 1 study within the first year after its declaration and description are registered. 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).
| Step | What the board must do |
|---|---|
| Review the study | Within 120 days of receiving it, review it and propose a funding plan |
| Notify owners | Within 15 days of proposing the plan, send owners the Notice of Future Funding of Reserve Fund, and send the study, plan and notice to the auditor |
| Put the plan in place | Implement the plan 30 days from the date it was sent to owners and the auditor |
How a low fund reaches your wallet
If a study shows the fund falls short, the plan must make the fund adequate by the fiscal year after the study is completed. In practice, that often means higher contributions, which come out of your common expense fees.
A special assessment is the other route. A board can levy one through common expense fees without owner approval, for reasons such as unforeseen expenses, a major repair that exceeds its budget, or litigation costs. Your share uses the same percentage as your common expense share, and owners must pay it. For example, a unit with a 5% share of a $1,000 monthly budget pays $50 a month.
Special assessments are separate from regular monthly fees. If one goes unpaid, the corporation gets a lien against the unit covering the unpaid amount, interest and reasonable legal costs and expenses.
Directors who depart from the study provider's professional advice may face liability, so boards are urged to be cautious about doing so. If your board's plan differs from the study, it is reasonable to ask how it reached that decision.
What you can do as an owner
- Read the Notice of Future Funding of Reserve Fund. It must include a summary of the study, a summary of the plan, and a statement of any areas where the plan differs from the study.
- Look for differences between the plan and the study. A gap there is worth asking the board about.
- Ask for the latest study and the budget, and ask how the board will meet the funding plan.
- If you are buying, read the status certificate. It may include a statement on the most recent reserve fund study and the state of the fund, and any special assessments levied since the current budget and why.
- Plan for higher fees or an assessment in your own budget, especially if the study is old.
A status certificate must be provided within 10 days, and whatever it includes or leaves out binds the corporation. In one court decision the CAO describes, a buyer was exempt from a share of a special assessment because the status certificate had not clearly disclosed that assessments might be levied. Whether that helps you depends on the facts, so get advice before relying on it.
What to do next
- Collect your most recent budget, the reserve fund study and any funding plan notice.
- Note the dates: when the study was received, when the plan was proposed and when it takes effect.
- Write to the board with specific questions about the shortfall and the plan.
- Set aside money for a possible fee increase or assessment.
- Speak with a lawyer if you are buying, if an assessment seems wrongly imposed, or if your declaration or by-laws are unclear.
Frequently asked questions
Can the board use the reserve fund for everyday costs?
Generally no. The reserve fund may be used only for major repair and replacement of the common elements and assets of the corporation. Day-to-day costs come from the operating budget funded by common expense fees.
Do owners vote on a special assessment?
Not necessarily. A board can levy a special assessment through common expense fees without owner approval. Owners must then pay their share.
How often must a reserve fund study be updated?
After the first study, updated studies are required at least every three years, alternating between Class 2 and Class 3.
What is the minimum amount the fund must hold?
The plan the board proposes after a study must make the fund adequate by the fiscal year after the study is completed. Whether a specific minimum figure applies to your building depends on the study and the current rules, so it is worth confirming with a lawyer.
Sources
- Condominium Authority of Ontario – Reserve Funds — condoauthorityontario.ca
- Condominium Authority of Ontario – Common Expenses — condoauthorityontario.ca
- Condominium Authority of Ontario – Special Assessments — condoauthorityontario.ca
- Condominium Authority of Ontario – Status Certificates — condoauthorityontario.ca
Links go to official government, court and regulator pages. The law changes — confirm you are reading the current version.
This is a real estate question
Start a file online — flat, published fees, reviewed by a licensed lawyer before a dollar is owed.