Condominium Corporations in Alberta are Required to Maintain a Reserve Fund for Capital Expenditures
The reserve fund is a mandatory item for all Condominiums and is regulated by the Alberta Condominium Act. The reserve fund is a separate trust account for the condominium corporation to cover the major capital expenditures and major repairs of common property and assets of the corporation. For more information about the ACT, please go here, or to download the ACT click here.
To determine how much money is required to be in the reserve fund a Reserve Fund Study and Reserve Fund Plan must be completed every 5 years by a qualified professional for the Condominium Corporation.
What is a Reserve Fund Study – it is an inventory of existing common area components (i.e. the roof, sidewalks, and boiler) and other assets of the corporation (i.e. furniture for guest suites or in amenity building) for the purpose of covering the costs of major repairs or replacement of these items? Your qualified professional should be doing a visual inspection when completing the reserve fund study.
What is a Reserve Fund Plan – a plan on when the expenditure for the major repairs or replacement of the common area components or other assets of the corporation will occur as well as how much money is needed to top up and maintain the reserve fund based on the reserve fund study.
SIMCO Management suggest a third-party consultant who specializes in completing Reserve Fund Studies and Plans. They will work with you to find the best plan that supports your long-term components while controlling costs and future increases to condo fees.
Education Page on Reserve Fund Study and Plans
Who Can Complete a Reserve Fund Study? – Per the Condominium Act of Alberta, a qualified person must complete the Reserve Fund Study. This person is someone who is knowledgeable about depreciating (aging) common property, including its operation, maintenance, and the costs associated with repairing or replacing it. A Reserve Fund Study and Plan must be completed every five years.
Tip for condo boards: If you are working with a Management Company, your Property Manager will obtain quotes from third party consultants who specialize in Reserve Fund Studies and Plans. As a Board, do your due diligence and research before selecting a qualified professional. For example, experts recommend that boards do reference checks and ask for samples of reserve fund plans the service provider has recently completed. This should be done before entering into a contract with any service provider.
Tip for condo boards: There is nothing that stops the Board of Directors for the Condominium Corporation to have the Reserve Fund Plan updated every year or before the fifth year of the Reserve Fund Plan. Having annual updates can be quite beneficial as it helps keep track of your major repairs or annual replacements. You can also see how your Reserve Fund Plan is affected for reserve fund projects that are either under or over budget and done early or late to the reserve plan.
What Information Should a Reserve Fund Study Report Include?
The reserve fund study report outlines the findings and the following information must be included:
Tip for condo boards: Once you have received the Reserve Fund Study report you should meet with the professional that prepared the report to ensure everything is listed correctly. Often times errors occur when a Board does not take the time to go through each line of the report with the professional they have retained, as not all information was given at the start of the project and is often caught during this meeting.
Who Can Complete a Reserve Fund Plan?
Your qualified professional that completed the Reserve Fund Study can complete your Reserve Fund Plan. The Board of Directors must approve and adopt the Reserve Fund Plan and a copy must be given to all owners of the Condominium Corporation.
Tip for condo boards: A Condominium Board can complete their own Reserve Fund Plan based on the Reserve Fund Study but we do not recommend this route. If the Board makes an error in the Reserve Fund Plan they could be held personally liable.
Can Funds Collected for Reserve Fund be Returned to Owners?
Money collected for the Reserve Fund cannot be returned to owners. If a reserve fund project came in under budget to the reserve fund plan then the surplus funds are not given back to the owners but stays in the reserve fund’ plan.
The other scenario is that a reserve fund project comes in over budget to the reserve fund plan. The Condominium Corporation does not necessarily have to go back to the owners for the overage as long as it does not cause a significant impact to the reserve fund plan. It is one of the reasons why a new Reserve Fund Study and Plan must be completed every five years to reflect these differences.
Tip for condo boards: There is nothing that stops the Board of Directors for the Condominium Corporation from having the Reserve Fund Plan updated every year or before the fifth year of the Reserve Fund Plan. Having annual updates can be quite beneficial as it helps keep track of your major repairs or replacement annually and see how your Reserve Fund Plan is affected for reserve fund projects that are under/over budget and done early or late to the reserve plan.