Reserve Fund Studies
The purpose of the Reserve Fund Study is to ensure there are sufficient funds available to make major repairs to, or replace the common element components and assets of the corporation.
The study will comply with Ontario Regulation 48/01 General, made under the Condominium Act, 1998. The study will be of the Comprehensive classification.
Types of Reserve Fund Studies:
The Condominium Act and Regulations define three different types of Reserve Fund Studies:
- A comprehensive study
- An updated study based on a site inspection
- An updated study not based on a site inspection
A comprehensive study is typically the first Reserve Fund Study that would be carried out on the condominium property. This study includes a site review and would meet all the requirements for a Reserve Fund Study, as defined in the act.
As the name implies, an updated study based on a site inspection is a study that updates an existing comprehensive study, so that it is current as of the date of the update. As part of this update, a site review is necessary in order to verify the condition of the components and the timelines and costs for replacements.
An updated study not based on a site inspection is also an updated study, but a site visit is not undertaken as part of the update. This update involves primarily updating financial information in the study based on information provided by the condominium corporation. Other items that would be updated would include cost estimates for the replacements, assumed inflation rates, and assumed interest rates for the reserve fund investments.
Comprehensive reserve fund studies are required for all new condominium corporations. For condominium corporations that existed prior to the release of the most recent Condominium Act (May 2001), there was a three year period to get a comprehensive reserve fund study undertaken. Thus, by now all existing condominium corporations should have had at least one comprehensive reserve fund study and an update undertaken.
The updates to a comprehensive reserve fund study are to be undertaken every three years. The first update after a comprehensive reserve fund study can be not based on a site inspection. The alternate update after that must be based on a site inspection. Thus, a site review would be carried out for every other update or every six years, approximately.
It should be noted that if a comprehensive reserve fund study is undertaken by one company, it is difficult, if not impossible, for a different company to undertake the update. Validation of the information in the initial study, as well as problems copying the data or even using a software which may be proprietary for the calculations, generally means that if a new reserve fund study provider is chosen that the corporation will be starting with a new comprehensive type study.
If requesting proposals for a comprehensive reserve fund study, it is important to ask the reserve fund study provider to also provide an indication of what the future update costs will be as well as the cost for the preparation of a Form 15.
A Form 15, otherwise known as a notice of future funding of the Reserve Fund is a plan that the Board is required to propose within 120 days of receiving a final reserve fund study. Within 15 days of proposing the plan, the Board is required to send to the owners a notice containing a summary of the study, a summary of the proposed plan and a statement indicating the areas, if any, in which the proposed plan differs from the study. The Board is also required to send to the auditor a copy of the study, a copy of the proposed plan and a copy of the notice sent to the owners. Further, the Board is required to implement the proposed plan within 30 days of when the notice was sent to the owners.
Very often, Reserve Fund Study providers will prepare the Form 15 on behalf of the Board. Much of the information in a Form 15 comes directly from the Reserve Fund Study.
A Reserve Fund Study Must Contain:
- 1. A Physical Analysis of Common Element Components:
- Reviews the condition and life expectancy of the components
- Comments on site conditions that may affect life expectancy
- Estimates remaining life or need for major repairs
- A Financial Analysis
- Estimates costs for major repairs or replacements
- Provides a 30-year projection for when major repairs or replacements will be necessary
- Develops a cash flow scenario to show how to properly fund the reserve
Four Important Facts About Reserve Fund Studies:
- Corporations created on or after May 5, 2001, must obtain a comprehensive study within one year of registration.
- Corporations created before May 5, 2001, must obtain a comprehensive study by May 5, 2004, OR conduct an updated study based on a site inspection, if a comprehensive study that meets the requirements of Ontario Reg. 48/01 is already in hand.
- There are three classifications of studies:
- Comprehensive – consists of a physical analysis and a financial analysis
- Update based on a site visit – can be done if there is already a comprehensive study done that meets the requirements of Ontario Reg. 48/01.
- Update not based on a site visit – can only be done if the study just prior was a comprehensive study or an update based on a site visit.
- A reserve fund that is found to be inadequate must be brought up to an acceptable level within 10 years of the date the first reserve fund study is done, on or after May 5, 2001.
To learn more about our Reserve Fund Studies, contact us at 866-964-3246 or info@CDWengineering.com