Reserve Funds: An Incredible Balancing Act

Where does the cash actually come from?

Some portion of a building’s monthly fees is put away into the equivalent of a piggy bank, and this is known as the reserve fund. As we said, a portion is saved, meaning this is not equivalent to all the money received through monthly maintenance fees.

The regular budget makes up the remainder of this money, which is used to pay regular monthly costs such as minor repairs, labour (landscaping, cleaning, snow removal), and heating and electricity for common areas.

On the whole, a reserve fund is your building’s insurance—and you can rest well knowing it’s there. A good Realtor will be able to navigate you through the ins and outs of the buildings and help avoid problems before they occur.

The answer to the question is: reserve funds come from homeowners, yet the amount saved for emergencies isn’t your choice. Ultimately, the contribution made to a reserve fund is at the discretion of the condo board members (who you elect), and can be a higher or lower percentage of monthly fees depending on the building.

Where does it go?

What a reserve fund covers can be extremely costly, which is why it’s hard for a building to save a decent amount while spending at the same time. Even if a larger percentage of monthly fees is put away, one expenditure can put a reserve fund into the red—and it’s mainly a matter of chance.

What isn’t up for negotiation, however, is that the reserve fund is not for daily use. This is why, although more money in the savings account seems ideal, a building shouldn’t put too much away: because something like replacing every window frame in a 300 unit building may not be considered a major repair or replacement under the Condominium Act.

Risky Business

Reserve funds are difficult to grapple with—older buildings may have more cash stashed away from saving over a longer period of time, however they also may have less as they have had more major wear and tear to deal with.

Brand new buildings, on the other hand, must start with some small fund, based on the Condominium Act. The fund is started by the developer, and the amount is determined by whichever amounts to more: calculating expected long-term repair and maintenance costs or calculating 10 percent of all common expenses other than contributions to the reserve fund.

On the whole, a reserve fund is your building’s insurance—and you can rest well knowing it’s there. However in determining whether a building has a sufficient reserve fund, and/or was built by a reputable builder, a good and informed realtor will be able to navigate you through the ins and outs of the buildings and help avoid problems before they occur.