The reserve fund or capital replacement fund is a savings account for the condominium corporation that is accessed when scheduled replacement of condominium building components are required. This includes replacements of boilers, roofing tiles, windows, etc. It does not involve repairs within the four walls of your unit – only common property repairs or replacements.
It does not involve daily maintenance such as pest control and the locksmith replacing a lock for which the keys were lost or a plumber repairing plugged drains. Such costs are funded from the normal operating budget along with utilities and condominium management fees, snow removal, etc.
Both types of expenditures are paid for from the condo fees. However, whereas daily maintenance is paid immediately; reserve fund expenditures have been planned and have been scheduled for typically a 25 year period. This is called the Reserve Fund or Capital Replacement Plan. The plan is set-up by specialists, often engineering companies, upon request by the condominium board. The cost for making the plan is funded from the operating budget and the plan is updated every five years.
Once, the plan is approved by the condo board it is implemented. Each month, like in a savings plan, the condo corp deposits a portion of the condo fees into the reserve fund, while expenditures as scheduled by the reserve fund plan are made whenever it is due. The Reserve Fund Plan includes the starting balance (at the beginning of each 5 year revision period), the amounts of monies to be deposited monthly to keep the balance of the reserve fund as scheduled, the estimated scheduled expenditures and the fund`s periodic (often annual) resulting balance.
What not is included in the reserve fund are capital expansions, such as the addition of a garage or gazebo, or hot pool. Funds for such additions will have to be raised elsewhere.
The reserve fund level has to be within a certain range of the reserve fund balance as planned for in the reserve fund plan. If not, a cash call maybe required. Thus when you buy into a new condominium complex you want to inspect, or have an expert inspect, whether the reserve fund plan is sound and whether the reserve fund contains sufficient funds. If the reserve fund level is insufficient, you may decide to walk away from the purchase or to demand a lower purchase price to compensate for the unit`s share of the reserve fund shortfall.
Hope this helps.
