Condo Fees To The Reserve Fund (the Contingency Fund)

Écrit par Me Sébastien Fiset , LL.B., B.A.A.
Mardi, 23 Février 2010 16:17


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Prevent or cure

Under article 1072 of the Civil Code of Québec, the contribution of the co-owners to the contingency fund is at least 5 % of their contribution for common expenses. However, can you be assured of being able to pay in due course for the work that needs to be carried out? Are you ready to face the reality? Unfortunately, this percentage is often too small to protect the syndicate against a financial crisis.

Even if you do not plan to redo the roof in the near future, the windows are high quality and for the moment the parking lot shows no sign of deterioration, you must make sure of having the necessary funds to replace them, and in due time !

Are you prepared ?

– Are you a member of the Board of Directors of your syndicate of co-ownership and have concerns about the amounts that have been amassed in the contingency fund? You are right to be concerned because your personal liability is now engaged.

– You are about to listing your dwelling and at the last general meeting of co-owners there was talk of a special assessment because of insufficient funds to cover the costs of replacing windows. Do not think you can pass on this high bill to the next buyer on the sly. You have a duty to expose these facts to prospective buyers even if this could cost you a loss in the value of the dwelling.

Too often, important and necessary repairs are delayed for lack of funds. Some are living the nightmare of being imposed a high amount to pay for the work that can no longer be postponed and for which the contingency fund was insufficient. Imagine you had to forget about your personal savings and that your debt ratio got to a point where you could no longer make any manoeuvres…

If you do not contribute enough to the fund for common expenses, sooner or later you will have to catch up with what has not been set aside. It will be more difficult because the bill will be higher and you will have a short maturity.

How is it possible to ensure the sustainability of the contingency fund and / or remedy a situation that appears to be heading towards a crisis?

Do not exceed your level of competence and always call upon recognised experts (architect, engineer or technologist). It should be noted that vendors are not in this category.

A syndicate having carried out an expertise or building inspection and having kept a maintenance book, is better equipped to assess realistically the sums that will be needed to cope with the important work ahead, whether in the near or distant future.

It is strongly advised to appoint a single expert with the task of delivering the plans and specifications and obtain the necessary submissions so that these will be identical and meet the same criteria (in terms of work to be performed, quality of material to be used, components’ lifetime and warranties).

The experts will conduct a detailed inspection of your building, provide estimates of the costs of major repairs and / or replacement costs spread over a timeframe of up to twenty (20) to thirty (30) years of the building’s commons, fitting out to the roof. An assessment of the state of the systems, their components, their replacement costs and an estimate of their useful life are essential.

The goal is to accumulate a sufficient reserve in a planned and gradual way. This fund will be reserved exclusively for major repairs and for the replacement of parts from the common portions. It is strongly encouraged to raise these funds in a bank account separate from the one used for current needs. The costs of minor repairs or maintenance will be factored into the syndicate’s annual budget with the account of everyday needs.

Of course, the inspection may reveal some «anomalies» or «vices», which should not be neglected and that, for the sole purpose of prolonging the life of the immovable and to allow to project justly the life of major parts of the immovable.

What experts will need to carry out their tasks is:

  • Any information relating to the building : description of common areas and of those subject to limited use, equipment and rules for the allocation of expense. Some by-laws contain specific provisions for the common areas subject to limited use, such as balconies, roof terraces, etc.;
  • The history of the immovable;
  • The maintenance book of the immovable;
  • Architectural plans, engineering and the certificate of location.

The estimated annual contribution required to cover the major repairs will help you determine what the necessary annual contribution to the contingency fund will be. The inflation rate must also be taken into account ! The calculations will be updated periodically (recommended every three (3) years) to reflect accurately the reality and to direct the contingency fund to a «sufficiency» fund.

Doing business with the appropriate experts will help you plan your costs based on the characteristics and very specific needs of your immovable and not by a percentage that appears increasingly inadequate, obsolete.

If you already have an established planning but have never used an expert, it is advisable to still consult one in order to ensure that your syndicate will always be able to preserve the immovable. Simple developments and updates will improve and reward your efforts so far.

You have nothing to lose. On the contrary! A syndicate that has a good contingency fund promotes the sale of fractions ensuring the sustainability and stability of the investment.

Ask before you buy your condo : request financial statements et minutes of past meetings. Check the balance in the contingency fund. Ask about major repairs that have been done and about those projected. Study well the inspection report before buying. You do not have to pay for previous owners! Be careful!

The information provided on this page is general in nature and cannot compensate for the need to obtain legal advice specific to a particular situation.


Mise à jour le Samedi, 16 Août 2014 17:41

Me Sébastien Fiset
Me Sébastien Fiset