Is your Reserve Fund Study aligned with your year end?

The Condominium Act in Ontario requires a condominium corporation to complete a reserve fund study every three years and requires that every other study be based on a site visit.  Many Ontario condominium corporations are following this three/six-year schedule, but their reserve fund study is out of sync with their fiscal year end. For example, they may have a fiscal year end of May 31, but find that their last study was finalized in October.  Ideally the study would be in draft while you are developing your budget, so that the combined increase related to both reserve and operating costs could be considered together. For a May 31 year end, that would mean starting a study in about January, so the draft is ready in March. In March and April, the budget can be set. Then the Notice of Future Funding can go out, providing the required 30-day notice of the increase which would start June 1.

So, what is a condo to do if there study is out of sync? It may be tempting to delay the reserve fund study, finalizing the next update three and a half years after the last one. However, this puts the corporation off the requirements of the Act. Therefore, it is better to advance the study by half a year. So, in the example above, the corporation with a study that last finalized in October 2019 but has a May 31 fiscal year end would be wise to start their next update six months early - in January 2022, planning to finalize it in April/May 2022 rather than October 2022.

The good news is that if you fix the timing once, future studies tend to fall into line, because the property manager will see the date on the study and plan to have another one completed three years later. So you won't just be helping your own board be organized, you will be helping all future boards that oversee the condominium corporation.

2021 and Still Waiting

It has been a long time since I last posted. 

Looking back, I see an optomistic post I wrote in 2012 that talked about the problems with condo Reserve Funds and how I hoped that the Condo Act amendments that were starting to be discussed at that time might solve the problems. Yet here we are, in 2021 and the same problems still exist. Ontario Condos still start off underfunded in EVERY case. 10% of the operating budget IS NOT ENOUGH!!. The 30 year analysis period is still NOT long enough for new condos, given that there are very few expenditures in the first twenty years. And nothing has been done to prohibit long phase-in periods that allow condos to defer the bulk of the reserve fund contributions to future owners.

The oldest condos is our industry are now over 50 years old and many of them are struggling. They provide us with a very clear education about what happens when a reserve fund is not adequately funded. The financial difficulties simply build with time until they become almost insurmountable. The buildings degrade physically. People who move in are unlikely to have the resources available to afford a special assessment, if one is needed.

The Auditor General completed a review of the condominium industry in 2020 which contains many recommendations to rectify these same concerns.  The Ministry did a new consultation in 2020 are received much of the same feedback. We, as an industry, have done everything we can do to help move things in the right direction. Now we wait, again!

I joke that I won't retire until some of these key financial issues are addressed. I'm starting to fret that the government might make a liar of me.