How a Condo Reserve Funds Could Increase You Home's Value or Destroy it!

Whether you live in a condo or are thinking about purchasing one, the reserve fund it carries is something you need to keep in mind. It plays an important role within your condo as a whole and is something you may end up needing in the future.

This fund works like a savings account because it’s designed to cover expenses that the condominium owners will face in the future. Every building should have one of these, and there should be individual owners who are responsible for maintaining it. If you're not familiar with all the essential facts about this type of fund, then it’s important to learn about them so you’re prepared in the future.

Special Account Required for Reserve Funds

In the province of Alberta, a separate bank account is required for the reserve funds to be kept. This means that the funds cannot be within the same account that’s designated for routine repairs or replacements.

Reserve Fund Studies are a Must in Alberta

Every 5 years Alberta condo buildings are required to have Reserve Fund Studies updated. This is meant to ensure the heating/cooling systems, garage, windows, and other physical aspects of the building are in good condition. It also determines when those things might need to be replaced or repaired. Only engineers with special designations are able to do the reports, as they are specially trained with what to look at. Most buildings generally update their reports on the 5-year mark as to save money on full reports.

Directors of a Condo Must Have a Plan to Set Money Aside!

When reserve fund studies are completed, the results are turned over to the directors of the board. Their job is to create a fundraising plan that will ensure enough money is available to cover the repairs and replacements in the future.

An example of a common plan is to take 10% of condo fees and put them into the funds with a planned increase (normally 1%) for the next several years. This must be implemented within 120 days, and owners must be given an overview so they know what's going on.

Funds Can Only Be Used for Certain Expenses

Reserve funds are ONLY for non-routine repairs and replacements. This means they can be used for things like the roof and the boiler room, but not the pool and other routine repairs.

Reserve Funds Must be Maintained

If directors fail to properly maintain the reserve funds as suggested by the reserve fund study, they could be sued by owners within the building for neglecting to do their tasks properly.

Funds May Not Be Adequate

Because construction costs are on the rise, it's possible that repairs or replacements may cost more than anticipated in the future. Another common issue arises when reserve funds are needed earlier than anticipated, especially for building repairs and they could cause further problems with the condo fees.

If you’re currently or will live in a condo, then it’s important to familiarize yourself with the reserve fund that’s carried by the building. If you are buying then make sure you look at this ahead of time so you know whether or not a sufficient amount of funds are in place.