The purpose of a condominium corporation's reserve fund is not to have a lot of money saved up and to feel rich, but to accomplish the major projects that preserve the common property. Some Boards of Directors are too shy of spending, especially on big-ticket items. But that's what the money was saved for, and a watertight roof overhead, for example, is better than cash in the bank. Either way, it remains an asset of value to all owners within that condo community.
Hesitation to spend reserve fund money is sometimes caused by rigid adherence to an engineer's study of projected capital needs and the savings plan he laid out to address those needs. Such a "reserve fund study" might have suggested that your building's roof would need replacement in 10 years. But if water is getting into the building today, it's wiser to address the issue today, rather than trying to get by for a decade. The Plan only lays out the expected scenario; it is not a book of rules. Besides, in Alberta condominium reserve-needs studies and financing plans are required to be updated every fifth year. Let adjustments be made then.
Deciding to spend hundreds of thousands of dollars can be intimidating for condo Board members. There are even multi-building condo corporations in Calgary that have had to deal with spending millions of dollars. Yet these volunteer Board directors are charged with preserving the buildings that house hundreds of people. My message is not to spend lightly, but to encourage Boards to see the big picture, face reality and, when necessary, to spend as needed to preserve your homes and your property values.
It's entirely possible, of course, that by spending on an immediate need another repair or replacement will see a shortage of funds at some point. But it's equally possible that one of those projected future expenses will not arrive as soon as the engineer thought. The new roof today, to continue our example, may appear to leave the reserve fund short tomorrow, but expected window replacements may not be necessary when the engineer projected, or their replacement might be phased, rather than all be done in one year. Keep in mind that you can't live with a leaking roof, but double-pane windows that fog up inside can be tolerated for years. In other words, some projects have a degree of discretion, while others don't.
In the worst case, increased condo contributions or a special assessment might be recommended by the engineer to cover a reserve fund shortfall. The Board will need to discuss whether to do one, the other, or a blend of both. Keep in mind that there is a limit to what is seen as reasonable for monthly condo fees. In apartment condominium in Alberta at this time buyers shy away when they exceed 45 cents per square foot of suite property per month. If reserve-fund demands would raise monthly fees higher than that, I recommend the option of a one-time special assessment to replenish the fund. Condo home owners selling in the near future will likely be rewarded for their expense through an easier sale at full market value.
Whichever way the needs of the reserve fund are faced, Boards have a duty under Alberta's Condominium Property Act and through the condo bylaws to maintain the common property. The owner of a single-family home may have the option of allowing the house to rot into the ground, but we in condominium do not.
Although some Boards want to sit on the reserve money, or they fear falling short for other projects in future, my advice is to solve today's problems today. Let the engineer adjust your list of capital needs along with the saving and spending plan every fifth year. To some extent we have to spend now to solve today's problems and let the future take care of itself.
Calgary Condominium Directory
