A reserve fund is a separate account maintained by a condominium corporation specifically for major repairs and replacement of common elements and assets. A condominium corporation is statutorily required to periodically obtain a reserve fund study.
Reserve Fund Study
A reserve fund study is a routine assessment of a condominium corporation to make sure it has enough funds in its reserve fund to cover major repairs and replacements of its common elements and assets within the next 30 years.
The study must be completed by authorized professionals such as architects, appraisers, engineers, and others within one year of registering the condominium declaration and description and then every three years after that.
Individuals authorized to conduct the reserve fund study are:
- Licensed architect
- Accredited appraiser
- Certified engineering technologist
- Certified reserve planner
- Professional engineer
- Professional quantity surveyor
- Architectural technologist
- Registered building technologist
- Graduate of Ryerson University with a Bachelor of Technology (Architectural Science) — Building Science Option or Architecture Option.
The individual must be independent and have no connection with or interest in the condominium.
Components of the Study
A Reserve Fund Study consists of two analyses: a physical analysis and a financial analysis.
The physical analysis evaluates a condo corporation's common elements and assets to:
- Identify those needing major repairs or replacements at least within the next 30 years and
- Determine their normal expected lifespan, remaining lifespan, estimated year for the major repairs and replacement, and estimated repair or replacement costs.
The financial analysis determines whether the reserve fund is and will be sufficient to cover the repair and replacement costs of the corporation’s common elements and assets.
Classes of an RFS
There are three classes of a reserve fund study, each with specific requirements and timelines.
Class 1 – Comprehensive Study: This is the initial reserve fund study a condominium corporation obtains, completed within one year of registering the condominium declaration and description. It includes a visual site inspection of the condo building, records verification, and interviews of the corporation’s directors, officers, employees, and the condo management company.
Class 2 – Updated Study with Site Inspection: Completed six years after the corporation’s Class 1 study and every three years after the last Class 3 study. It includes site inspections and the requirements of a Class 1 study.
CLASS 3 - Updated Study without Site Inspection: This does not involve a site inspection; it only requires a review of the corporation’s records and interviews of its principal officers, directors and management company. A Class 3 study is completed three years after a Class 1 or Class 2 study.
Actions Required After a Reserve Fund Study
The Condominium Board must propose a funding plan within 120 days of receiving the study, which should align with the study's recommendations, and notify unit owners of the plan details.
The proposed funding plan may involve increasing the monthly condo fees, increasing the portion of the monthly condo fees contributed to the fund, or levying a special assessment to fund proposed major repairs.
The Board must send a notice of its proposed funding plan to the unit owners within 15 days of the plan. The notice must contain:
- A summary of the study
- A summary of the of the proposed plan
- Details of how the proposed plan differs from the recommendation in the study.
How to Use a Reserve Fund Study When Purchasing a Condo Unit
When purchasing a condominium unit, it is important to review the last reserve fund study and Notice of Future Funding to confirm the physical state of the building and assess the likelihood of special assessments or condo fee increases.
At Cozien Law, we represent buyers in the acquisition of condo units and have significant expertise in reviewing status certificates and reserve fund studies. Feel free to reach out to us if you have any questions regarding a status certificate, reserve fund studies or the acquisition of a condo unit. Our telephone number is 819-230-7116, or you can email us at info@cozienlaw.com.
[This post does not constitute legal advice or opinion; please reach out if you have any questions]