The Reserve Fund Should Not be Overlooked!
When it comes to condominiums, the reserve fund is used to pay for major expenses associated with the repair and replacement of the property’s common areas, such as the roof.
Since 1994, Article 1072 of the Civil Code stipulates that a condominium’s board of directors must determine “the sums required to meet the expenses arising from the co-ownership and the operation of the immovable, and the amounts to be paid into the contingency fund. The contribution of the co-owners to the contingency fund is at least 5% of their contribution for common expenses.” This is not a choice or an option, but an obligation. However, is 5% enough?
What the law sets out is only a minimum
Reality requires more. When major work has to be done, the reserve fund may be insufficient. If this is the case, co-owners will be required to pay a special assessment. These assessments often amount to several thousand dollars. How then, are co-owners’ contributions to the reserve fund determined? It depends on the characteristics of the building and property such as their age, state of repair, quality of facilities, life-cycle of systems and materials, and many other factors.
Responsibility of directors
To avoid potentially major troubles, a healthy reserve fund is an effective way to protect co-owners from extremely unpleasant situations. Under the terms of the law, the fund is established “according to the estimated cost of major repairs and the cost of replacement of common portions.” Boards of directors should therefore have in their possession an evaluation of the replacement costs of the common elements and their lifespan in order to make informed decisions.
A well-planned reserve fund allows directors to maintain the building functional and in good condition. This protection benefits all co-owners, who will thus be spared from a call for funds that would require them to dip into their savings. It’s better to plan for more than less since this is the very definition of foresight.
If you have questions about a property’s reserve fund, contact your real estate broker who can offer you sound advice.