In reviewing condominium documents prior to a condo home purchase, some buyers jump to negative conclusions when they see that the Reserve Fund bank balance is less than an engineer recommended. But credit might not have been given for capital works that have been done in advance of what was recommended in the engineered Reserve Fund study. To see the complete picture you need three pieces of information. These are: 1/ The amount in the Reserve Fund today; 2/ The amount the Reserve Fund Study recommended be on hand today; and 3/ A list of capital work that has been done in advance of when the study projected it would be done.
As we know, reserve-needs studies are required under Alberta law to be updated every fifth year. Although that's not a long time, by the third or fourth year some substantial and expensive projects might have been performed by a diligent condominium Board. Like a balance sheet, then, the money moves from the cash side to the "accomplished" side of the sheet. The corporation's not short of cash at all; it has simply been converted to tangible assets in the form of a new roof on the building(s), for example, or new heating boilers in the basement.
To address this information shortfall, I recommend that condo corporations compile and update a "statement of completed capital work". This sheet can be distributed annually with the report of reserve-fund spending, and can be issued to prospective buyers, so they see that the "missing" money has been well spent, and that the building is well maintained. When the Reserve Fund Study is updated after five years, of course, the engineer will roll the information into the new report. The new spreadsheet will state the expected service life of the new components, and project ahead the years or decades until that expense will arise once more.
My caution to shoppers for resale condos is to not jump to negative conclusions based on an incomplete look at the condominium documents. There is no simple dollar number that should be in a Reserve Fund account, because a building might be brand new with virtually no immediate need for reserve funds. It could also be an older building that just spent much of the reserve cash to entirely renew all mechanical systems. These are both likely excellent buildings, but will at first glance have little money in the bank. See the complete picture by looking at the projected cash needs, the actual cash on hand, PLUS the work that's recently been accomplished.
Calgary Condominium Directory
