Reserve Funds

I am often asked by condominium boards how to handle unanticipated major expenses that don't fall within the confines of a Reserve Fund Study. This could be a situation where the roof was supposed to last another ten years, and an inspection reveals that the replacement is urgently required, or the restoration of the common property following uninsured damage.

There is no condominium 'watch dog' out there making sure that a condominium's reserve fund balance is aligned with the recommendations made in a Reserve Fund Study. A board is free to take a common sense approach to spending from their reserve, and there is case history in the Alberta courts that supports a board's right to make prudent decisions on behalf of the owners.

Soon after the amended Condominium Property Act was released in 2000, an owner challenged a board's decision to complete exterior repairs to a condominium that only became apparent during a window replacement program. The Judge presiding over the case agreed that the board was justified in repairing the exterior of the building, notwithstanding that funds were not specifically earmarked for this use in the Reserve Fund Study.

This makes sense from a budgeting perspective as well. Trying to adjust annual operating budgets and condominium fees to accommodate unanticipated major repairs in order to preserve the reserve fund balance makes absolutely no sense. The Reserve Fund Study is a projection of what is expected to occur over a lengthy period of time (25 years), and while it is important to maintain a healthy balance in the reserve fund, the Study isn't intended to represent rigid milestones. This is why there is a legal requirement under the Act to update it every five years, to catch up with actual inflation and investment returns, as well as actual expenses.