Part Three in the Condo Series
In Part One of this series, we talked about the fact that condominiums are made up of exclusive use units as well as common elements; the parts of the development that are owned in common by all of the unit owners. These would usually include things such as roadways, parking lots, on-site amenities, roofs, etc. The costs to maintain, repair and replace these common elements are shared amongst all of the owners in the condominium corporation.
A reserve fund is essentially a savings account. A portion of the condo fee you pay each month is transferred to a separate trust account for the reserve fund. The amount that is contributed is established based on reserve fund studies which the Board of Directors must use to ensure it is properly funded. The reserve fund study looks at the lifespan and condition of all the major elements and forecasts anticipated costs for the common elements.
Usually, a healthy reserve fund with a decent balance is a good sign of a well managed corporation. Sometimes, the fund is low however, the corporation may have just completed major work and is beginning to rebuild the fund. If that is not the case, further investigation is often needed to determine why the balance is low. When you obtain a status certificate of the corporation, it will provide the most recent reserve fund study as well as information on any inadequacies in the fund, planned top-ups (special assessments to owners) or anticipated projects.