Reserve Fund Study – The Importance of Scope

    Alberta Condo Law states that condominium corporations are required to establish and maintain a reserve fund that can be used to cover the costs of major repairs or replacements to common property. Since condominium dwellings make up close to 1/5th of all Canadian households, many Albertans are wondering – how is my condo board ensuring that there are sufficient funds in our reserve for expected future expenses? For any condo resident, it’s important to know that their common property elements will be fully covered when repair or replacement needs arise. A properly compiled reserve fund study could be the answer.

    There are specific criteria that dictate how a condo’s reserve fund is maintained, and further information can be found on the Condo Law for Albertans’ website. Most readers however, are interested in the dynamics of how funds are raised by a condo and whether the financials accurately represent the potential expenses.

    For a condo to accurately attain that number, a reserve fund study is required.

    What Is A Reserve Fund?

    We’ve written a myriad of posts on what reserve fund studies are, how to plan a depreciation report, how to use them and their benefits. Below is a simple breakdown of a reserve fund study’s essential components:

    • A comprehensive visual assessment of all major depreciating common property elements owned by the condo.
    • To be completed by a qualified person(s), with designation qualifications clearly stated in the report.
    • Must be completed every five years in Alberta.
    • Includes a professionally prepared financial funding model.
    • Condo board to use the funding model to create and maintain the reserve fund.

    For both potential buyers as well as current condo owners, it’s crucial to ensure that one’s condo board hires specialists that are able to provide unbiased and accurate data when conducting such a study. For more on the specifics of a reserve fund study, visit the Appraisal Institute of Canada.

    Importance of Scope Accuracy

    If a reserve fund study is not completed with accurate scope, the consequences can be detrimental for the board and the unit owners. An accurate scope is one that includes full, precise accounts of all common property elements.

    It is mandated that a reserve fund study report on elements that may need repair within a 25-year period. For most newly renovated condos, 25 years is not sufficient if the report doesn’t include all a property’s components. Construction quality is rising and major components such as balcony guards, some types of roofing, suppression systems and components of plumbing can last well beyond 25 years. Without the right professional service provider, your report could be completely ignoring those components outside of the 25-year minimum and unintentionally setting your condo up for a lack of funding.

    This limitation in scope can lead to underfunding of the reserve. This could lead to some unfortunate impacts for the condo corporation, including:

    • Need for issuance of special assessments (levies) to unit owners
    • Unexpected spike in condo fees
    • Major delays in repairs or replacements

    In addition to reviewing the report for inclusion of all components, the board should also inspect the report to it does not include unnecessary items as well. If the report is too specific, you could be charged too much in condo fees. This is important as any money collected for a reserve fund cannot be reimbursed to owners. Any excess stays in the reserve for future use.

    The Normac Difference

    At Normac, we strongly believe in offering the highest quality of reserve fund study reporting.

    Our above-and-beyond approach to preparing a reserve fund study can be seen through our comprehensive reporting and superior services. The benefits are multifold:

    • Our funding models includes all major building components, even if a replacement or repair project falls outside the 25-year scope. This helps the condo to save appropriately for all components, regardless of lifespan.
    • We offer a board meeting at no cost to introduce the report, review the study and funding in detail, and handle all questions in person.
    • We prepare three possible funding models for the board to consider, while other reports include only one. This way a board can choose the best course of action for the corporation.
    • We factor in the current reserve pool, or lack thereof, and create our reports to catch you up to the proper savings amount.
    • Included are recommendations of proper maintenance care and monitorization tips to ensure your property lasts as long as possible.
    • Reports are comprehensive yet digestible. We don’t include unnecessary plans for every small building feature.

    To receive a free, no-obligation proposal, you can request a quote here.

     

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