Reserve Fund Study

A Reserve Fund Study assists Condominium Corporations in determining the contributions to be made to the Reserve Fund in order to meet future repair and replacement expenses. In accordance with the Condominium Property Act, Condominium Corporations are required to have a Reserve Fund Study completed every five years. Our functional reserve fund studies are comprehensive and presented in a logical, easy to read format.

What is a Reserve Fund Study and what does it include:

A reserve fund study is a financial plan to determine the amount of money needed to be accumulated by the condominium corporation for major repair, upgrading or replacement of common area property as defined in the corporation’s by-laws. In its most common form, a reserve fund study covers a 30 year period and must be updated every 5 years. These updates are necessary because components deteriorate at various rates and the finances of the corporation change over time. Expenditures that occur annually, such as routine maintenance (lawn service, snow removal) are to be accounted for in an annual operating budget.

The following process is included as part of a reserve fund study:

      •Site visit to assess the general condition of the common property and calculate the area of each component. This includes review of any building plans and specifications that are available.
  
      •Financial calculations and scenarios to determine the contributions necessary in the reserve fund to cover expenditures when they are estimated to occur, with adjustments for assumed inflation.

      •Written report describing common area components, their general condition including expected life, effective age and expected remaining life. The written report also includes explanation of the financial portion of the reserve fund study.

The steps in the process include identifying, inspecting and quantifying the common elements including assessing their effective age/life cycle. A benchmark analysis is then developed which sets out the optimum reserve fund contributions. A historical profile is added into the calculations in order to ascertain what financial expenditures have already occurred. The cash flow projection then takes into consideration the inflation and interest rate trends. This cash flow projection sets out effectively the actual cash flow requirements over a 30-year horizon through an appropriate level of contributions.

A reserve fund study once adopted by a corporation or organization is then presented as a final report and becomes the plan. A reserve fund study is relied upon by potential buyers who are becoming more astute as to the significance of this document and its very direct impact on values. It is incumbent on the corporation to review the planning process as required by statute or on a five-year maximum basis.