Tuesday, April 5, 2011

10% of Less is Less

Many new Ontario condominiums have their first year reserve contribution set at 10% of the operating budget, as this is the minimum contribution allowed by the Condominium Act.  This has always been problematic, because most buildings require at least twice this amount to adequately fund their reserve.  When the first year reserve fund study is completed, the maintenance fees must climb dramatically to cover this increased reserve contribution (not to mention a possible hefty increase to the operating budget). 

Unfortunately this can be expected to get worse before it gets better!!  New condominiums are being designed using green standards (such as LEED™ or the City of Toronto requirements).  Generally speaking, these buildings have utility costs individually metered to the suites rather than being included in a building-wide utility bill.  This drives the corporation's operating budget down significantly.  Now, when the builders set the first year reserve contribution at 10% of the operating budget, they are working with a much smaller budget; so 10% of less is less.  Unfortunately, individual metering does not reduce reserve requirements (these buildings will still require renewal of their walls, roofs, windows, central plant etc).  This means that these buildings will have an even larger increase between their first and second year maintenance fees than we have traditionally seen.

The sad part is that a reserve fund study can easily be completed from a set of drawings, so there is no excuse for a builder to not know what the required reserve contribution should be.  Unfortunately, a builder who diligently took this path would appear to have priced themselves out of the market when buyers compare the first year maintenance fees across the market.  This cannot be expected to happen builder by builder; it requires an industry-wide change to the Condominium Act. 

Hopefully CCI-Toronto's initiative to get this change and others made to the
Condominium Act will be successful and this situation will become a thing of the past.

No comments:

Post a Comment

Feedback is always welcome