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THE CONTINGENCY FUND AND SAFE INVESTMENTS

THE CONTINGENCY FUND AND SAFE INVESTMENTS

It is the syndicate’s duty to ensure the creation of a contingency fund in which the amounts charged to the co-owners will be deposited and will only be affected to “major repairs’’ and to the “replacement’’ of the common portions of the building.

Article 1071 C.c.Q. :

“The syndicate establishes, according to the estimated cost of major repairs and the cost of replacement of common portions, a contingency fund to be used exclusively for such repairs and replacement, which is liquid and available at short notice. The syndicate is the owner of the fund.’’

The amounts paid to this fund must be cumulated, preferably, in a segregated bank account and the fund will increase over the course of months and years.

It is important to note that this money cannot just sit in the bank account. The syndicate also has to ensure that it makes the money work for itself.

That being said, article 322 of the Civil Code of Quebec serves as a warning for members of the board of directors with regards to their choice of investment:

“A director shall act with prudence and diligence.

He shall also act with honesty and loyalty in the interest of the legal person.’’

In other words, the directors have the legal obligation to act carefully and diligently, in the best interest of the syndicate. As the contingency fund is the property of the syndicate of co-ownership, the directors are liable of any careless and non-diligent consequences resulting from poor investments.

In general, stock market investments are not appropriate for the type of investments the syndicate should seek because of the high risks that they inherently compound. The syndicate should seek for investments which guarantee capital gains at a 100% rate.

Furthermore, the investment mean ensure that the fund remains “liquid and available at short notice’’.

Article 1341 C.c.Q. :

“An administrator may deposit the sums of money entrusted to him in or with a bank, a savings and credit union or any other financial institution, if the deposit is repayable on demand or on 30 days’ notice.

He may also deposit the sums of money for a longer term if repayment of the deposit is fully guaranteed by the Autorité des marchés financiers; otherwise, he may not do so except with the authorization of the court and on the conditions it determines.‘’

A term savings investment, at no risk and cashable at any time or within a thirty (30) day prior notice meets these criteria.

When the contingency fund becomes sufficient, a portion of the fund can be deposited in a longer term investment (higher interest rates), under the condition that such investment be guaranteed by the Régie de l’assurance dépôts of Quebec, for which the current ceiling of investment stands at $100.000.

It is interesting to mention the interests perceived with regards to the contingency fund are not subject to income taxes.

However, as financial institutions impose a “ceiling’’ on deposit insurance, the syndicate will have to split its deposits with different financial institutions until each deposit reaches the maximum amount allowed by the institution.

Financial institutions offer a vast variety of investment products which can suit any type of investor. Be clear with your financial institution with regards to your expectations and always remain diligent in your choices.

A financially healthy co-ownership is a win for the entire co-ownership. It will, without a doubt, have a beneficial impact of the market value of its fractions, the latter being the investment of each co-owner!

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