Reserve Fund Study Explained: What Ontario Condo Owners Should Know

Ontario's Condominium Act requires condo corporations to periodically commission a reserve fund study: an assessment of the remaining useful life of major common elements such as roofs, elevators, garages, and mechanical systems, paired with a funding plan for how much the corporation should be saving each year toward eventual replacement.

The reserve fund itself is the money actually saved. The study is the plan for how much should be saved. The two aren't the same thing, and the gap between them is often where special assessments come from.

The Ontario reserve fund study cycle

How much reserve fund is enough

There is no Ontario minimum. The Act does not set a dollar floor or a percentage, and the Condominium Authority of Ontario puts it plainly: a large or small reserve fund amount is not the only indication of a condo's financial health.

The legal test in section 94(1) is adequacy, and it covers two things, not one: the money in the fund and the contributions being collected. A healthy balance with contributions frozen below the plan is not the same as a smaller balance with contributions on schedule. Read them together.

• What does the study list for the next one to five years, and at what estimated cost?
• Does the funding plan's contribution schedule cover those specific years without a projected shortfall?
• Is the corporation actually collecting the recommended contributions, or has it deferred increases?
• Did the board's proposed plan differ from the study, and if so, on what?

What percent funded means, with a worked example

Percent funded is an industry comparison used by analysts and some study authors. It compares the money actually in the fund with an estimate of what would ideally have been accumulated by now for the components in the study. If a corporation holds $1.2 million and that ideal accumulated figure is $3 million, the fund is often described as 40 per cent funded.

That number is not an Ontario legal standard, and nothing in the Act or the regulation requires a corporation to reach any particular percentage. Ontario's funding plan is built differently. The regulation requires the recommended contributions to be determined on a cash flow basis, so that money is there in the year each item is expected to need major repair or replacement.

That difference is why the percentage on its own can mislead. Two buildings can both sit at 40 per cent funded and be in very different positions. One may have the roof, the garage membrane and an elevator modernization all landing within four years. The other may have nothing major due for fifteen years and a contribution schedule that closes the gap long before then. Same percentage, different risk.

• Treat a percent funded figure as a conversation starter, not a verdict.
• Ask which specific years the study projects a low or minimum balance.
• Compare the recommended contribution for the current year with what the budget actually collects.
• Ask what inflation rate and interest rate the projection assumed, since both are stated in the plan.

How to read the study's tables

The tables look technical, but the regulation fixes what they must contain, so you can read them in a set order. For each component in the inventory, the physical analysis states the actual or estimated year of acquisition, the present or estimated age, the normal expected life, the remaining life expectancy, the estimated year of major repair or replacement, the estimated cost as of the date of the study, the percentage of that cost to be covered by the reserve fund, and the adjusted cost after applying that percentage.

A worked example. A row reads: garage membrane, installed 2008, age 18, expected life 25 years, remaining life 7, replacement year 2033, estimated cost as of the study $900,000, 100 per cent reserve funded, adjusted cost $900,000. In plain terms, the study expects a $900,000 job in about seven years, fully paid from the reserve, in today's dollars before inflation.

The financial analysis then projects at least 30 consecutive years starting with the current fiscal year. For each year it shows the estimated cost in current dollars, the estimated cost at the time of the work using an assumed inflation rate, that inflation rate, the estimated opening balance, the recommended contributions, the estimated interest and the interest rate assumed, the total of contributions plus interest, any percentage increase in the recommended contribution over the previous year, and the estimated closing balance. The plan also shows the minimum balance across the whole period.

• Find your building's minimum projected balance and the year it occurs. That year is the pressure point.
• Check the assumed inflation rate against what construction has actually done since the study date.
• Note any component funded at less than 100 per cent, and ask where the rest of that cost is expected to come from.
• Compare the recommended contribution increase for this year with the increase in your budget.

If the board appears to be ignoring the study

Start with documents rather than conclusions. A board is allowed to propose a plan that differs from the study, but it has to say so: the notice sent to owners must state the areas where the plan differs from the study. That statement is the fastest way to see whether a gap is deliberate and disclosed or simply unexplained.

Two rules are worth knowing before you raise it. Reserve fund money cannot be used for anything except major repair and replacement of the common elements and assets, and the board does not need owner consent to spend from the reserve for that purpose. So the question is usually whether contributions match the plan and whether spending stayed within the permitted purpose, not whether owners approved a particular expenditure.

• Compare the recommended contribution in the study with the reserve contribution line in the current budget.
• Read the funding-plan notice again and check what it says about differences from the study.
• Ask in writing when the last study was completed and when the next one is due under the three year cycle.
• Ask your questions at the annual general meeting when the budget is presented, and ask for the answer in writing.
• If answers do not come, make a formal records request rather than repeating informal emails.
• Owners who own at least 15 per cent of the units, who appear in the corporation's record and who are not 30 days or more in arrears on common expenses, can requisition a meeting of owners.
• Get licensed Ontario legal advice before treating a funding decision as a breach, since these questions turn on the specific documents and dates.

How to request or review the reserve fund study

The corporation must keep a record of all reserve fund studies and all plans to increase the reserve fund under section 94(8), and owners, purchasers and mortgagees can examine or obtain copies of records in accordance with the regulations. Use the mandatory Request for Records form rather than an informal email, because the timelines attach to the form.

Once the corporation receives a proper request, the board must decide and respond within 30 days using the mandatory Board's Response to Request for Records form, and that response sets out an index of the records requested. You do not have to tell the corporation why you want the records: the regulation says a requester is not required to provide a statement of the purpose of the request.

One distinction saves time and money. The current funding plan proposed under section 94(8) is a core record, so it is the easier and cheaper one to obtain. The reserve fund study itself is not a core record, so copies follow the requester's response and payment of the applicable fee. If you are buying rather than already an owner, the status certificate must include a statement about the most recent study and its updates, the amount in the reserve fund, and current plans to increase it.

• Ask for the most recent reserve fund study and every update since it.
• Ask separately for the current plan for future funding under section 94(8), which is a core record.
• Ask for the notice of future funding that was sent to owners, including the differences statement.
• Ask for the reserve fund contribution line in the current budget and the audited financial statements.
• Keep the dated request and the board's response together, in case the file matters later.

Official Ontario sources

• Ontario Condominium Act, 1998Section 93 (reserve fund), section 94 (studies, the 120 day funding plan and the 15 day notice), section 95 (permitted use), section 55 (records), section 46 (requisition) and section 76 (status certificate).
• Ontario Regulation 48/01 under the Condominium Act, 1998Sections 27 to 33 set the three classes of study, the three year cycle, the required contents of the physical and financial analysis and the 30 year funding plan. Section 13.3 sets the records request process.
• Condominium Authority of Ontario: Reserve Funds and Reserve Fund StudiesOfficial plain-language explanation of the class 1, class 2 and class 3 studies and what a study contains.
• Condominium Authority of Ontario: Request for Records formThe mandatory form an owner, purchaser or mortgagee must use to request condo records.

What to check first

Common mistakes owners make

Documents to gather

When to get a closer look