Under the Strata Property Act, strata corporations and sections must have contingency reserve funds (CRFs) to pay for common expenses that usually occur less often than once a year; or do not usually occur.
When the sale of a strata lot occurs, the seller is not entitled to a return of contributions to the CRF. The contingency reserve fund runs with the strata, and not with the owners.
Why is it important that you buy into a building that has a healthy contingency fund?
The condominium’s reserve fund provides financing for major repairs and renewal projects over the life of the condominium building. The fund essentially ensures that the condominium’s common elements will be maintained in good shape.
Underfunded strata corporations are routinely identified as undermaintained properties.
Low strata fees result in low contributions to the contingency fund, which end up being frequent special levies for deferred repairs that are often delayed by defeated votes of the owners.
This can result in more costly repairs and an increased risk of insurance claims or serious implications on the cost or limitations of insurance renewals.
Regulation 6.1 requires that the Contingency Reserve Fund be equal to at least 25% of the Operating Fund.
If the reserve fund is below that amount at the time of the AGM, an amount equal to 10% of the operating fund must be contributed annually until the Contingency.
The maximum contribution above which a 75% vote is required has been repealed. Any amount can be contributed to the CRF with a majority vote.
The amount of money that should be in the reserve fund depends on:
Condominiums often rely on a reserve fund study to help them determine how much money should be in their reserve fund. Reserve fund studies are carried out by engineers or other professionals who assess the condition of the common elements of the building, estimating their remaining lifespan and their related repair and/or replacement costs. They then estimate what monthly or annual contributions will be necessary for long-term renewal.
Some jurisdictions have condominium legislation that requires that reserve fund studies be done on a regular basis. Others leave it up to the owners to estimate how much should be in the fund.
Regardless of where you live, it’s essential that you find out the current state of the condominium’s reserve fund.
The amount of money that should be in the reserve fund depends on:
- the condition and life expectancy of all of the common elements in the building; and
- the estimated cost to repair or replace them over the life of the project.
Some jurisdictions have condominium legislation that requires that reserve fund studies be done on a regular basis. Others leave it up to the owners to estimate how much should be in the fund.
Regardless of where you live, it’s essential that you find out the current state of the condominium’s reserve fund.
Check the disclosure statement or the estoppel or status certificate for this information.
When I sell my unit, am I entitled to part of the CRF?
When the sale of a strata lot occurs, the seller is not entitled to a return of contributions to the CRF. The contingency reserve fund runs with the strata, and not with the owners.