Capital reserve fund exists to minimize special assessments | Edmonton Journal
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Capital reserve fund exists to
minimize special assessments
ROBERT NOCE, EDMONTON JOURNAL
More from Robert Noce, Edmonton Journal
(HTTP://EDMONTONJOURNAL.COM/AUTHOR/RNOCE)
Published on: August 12, 2016 | Last Updated: August 13, 2016 7:25 AM MDT
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Capital reserve fund exists to minimize special assessments | Edmonton Journal
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Q: Due to mismanagement over the years, the
monthly fee on a condo my sister purchased
in 2005 increased from $350 to $436 to $644
per month following an assessment in
January 2015. Is this allowed? The reserve
fund was not kept up until recently. What is
the required amount for a reserve fund?
A: Yes, the increases in condominium fees are legal. There is nothing
in the Condominium Property Act that provides any direction with
respect to the required size of a capital reserve fund. The amount in
the reserve fund will vary from condominium building to condominium
building. The amount is generally determined by an engineer who
conducts a reserve fund study and provides that information to the
board. In Alberta, you are required to conduct a reserve fund study
every five years. The engineer would determine that in year one, for
example, the condominium corporation should replace the shingles,
and the amount to replace the shingles is X amount of dollars.
Armed with that information, the board, when setting its budget, not
only will raise sufficient funds to pay for the operating expenses of the
condominium corporation, but also put money aside in order to pay for
the capital improvement that will occur in 2016. I appreciate that there
is generally no appetite to increase condominium fees. However, the
old saying is true: Pay me now or pay me later. If there are insufficient
funds to pay for the capital improvement for that particular year, then
the only way the condominium corporation will get that money is to
issue a special assessment. That means people will be hit with a
significant one-time fee to pay for a particular capital improvement.
Helpful Hint: The whole purpose of the reserve fund is to minimize
special assessments. Use the reserve fund study and budget
appropriately so that current and future owners will not be burdened
with bad management decisions. This is worth repeating: There is no
prize at the end of the year for having the lowest condo fees in
Alberta.
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Capital reserve fund exists to minimize special assessments | Edmonton Journal
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Q: I am the secretary/treasurer of a 37-unit condo complex. We
have stored all the paper records from the past 26 years in
boxes. What documents must be kept?
A: The Condominium Property Act and the regulations do not provide
any guidance on this issue. I am assuming that your bylaws provide
no guidance either. Therefore, I would follow the general practice that
many organizations follow with respect to document retention. You
are not required to keep documents forever.
Obviously, you want to keep documents/agreements to provide
information with respect to ongoing relationships to protect the
condominium corporation in possible litigation and ensure compliance
with the law. You may want to consider developing a document
retention policy that divides the document retention periods into three
easy categories: permanent retention, seven-to-10-year retention, and
one-year retention. The policy should also provide for periodic review
and disposal of documents.
Helpful Hint: Document retention is a huge, yet important,
undertaking. As condominium corporations get older, the issue of
document retention becomes ever more significant.
Q: Can a condominium board use reserve funds for an item not
included in the reserve fund plan?
A: No. Once a condominium corporation has obtained the reserve
fund study, the board is required to put together a reserve fund study
plan. It is this plan that will govern the condominium corporation with
respect to capital expenditures. If a capital expenditure is outside of
the reserve fund plan, then it would be inappropriate for the board to
use reserve fund money to pay for an unexpected capital expense.
The reserve fund money is not a slush fund to be used at any time.
Rather, this money must be used in accordance with the reserve fund
plan that was adopted by the corporation.
Helpful Hint: When in doubt, the board should seek a legal opinion to
determine whether or not funds can be used for a particular purpose.
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Capital reserve fund exists to minimize special assessments | Edmonton Journal
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Q: I live in a complex that is a mixed property. The townhouses
are billed directly by the utility company for their natural gas.
Last year, my condo board over-budgeted the natural gas
expenditures for the apartment-style condos (124) by
approximately $22,000. This year, the apartment fees went down,
while the townhouse fees went up by over 12 per cent. I
empathize with the apartment-style condo owners, and I realize
the corporation cannot reimburse them for the over-calculation
of the natural gas costs, but does the board have the authority to
decrease the monthly contributions for one property type and
significantly increase another property type in the next budget?
A: The Condominium Property Act states that condo fees are to be
determined by levying contributions on the owners in proportion to the
unit factors of the owners’ respective units. Or, if provided for in the
bylaws, on a basis other than in proportion to the unit factors of the
owners’ respective units. In other words, if your bylaws allow you to
calculate condo fees in a different way, other than unit factors, then
you are permitted to do so. If your bylaws are silent in this regard,
then it would require an amendment to your bylaws to give the board
the authority to calculate condo fees on some other basis. To change
bylaws, you require 75 per cent of the owners and unit factors to
support that change.
Helpful Hint: I am aware of several condominium corporations that
assess condominium fees on a different basis than unit factors.
However, they do so because their bylaws give them that authority.
Check your bylaws.
Q: If the sale of a condo falls through because of a flaw
discovered at the time of an inspection request made by a
potential buyer, and that flaw might be common to other units,
i.e. the roof or installation of windows, do owners have the right
to know why the sale fell through if the seller has notified the
board? Similarly, if a sale falls through because the buyer’s
lawyer has recommend that their client not buy the property
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Capital reserve fund exists to minimize special assessments | Edmonton Journal
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because the reserve funds are unacceptably low, do the owners
have the right to know (again, assuming the seller has notified
the board) since any failed sale attributed to these two
circumstances will also negatively affect the other owner’s
property values?
A: If the seller wants to share this information with other owners within
the complex, then it would be up to them to decide what information
they would like their fellow owners to know. These kinds of building
flaws and reserve fund concerns are items best raised at the AGM,
when all owners in attendance have an opportunity to contribute to the
discussion. As well, it gives the board an opportunity to respond to
owners’ concerns.
Helpful Hint: There are aspects of home inspections that are
subjective, and one prospective buyer may accept a known flaw,
whereas another may not. The same can be said with respect to a
reserve fund, since a lower purchase price can sometimes offset a
future special assessment. While the board should hear and talk
about legitimate concerns, you don’t want to create a mass panic
situation where none is warranted.
Robert Noce, Q.C. is a partner with Miller Thomson LLP in both the
Edmonton and Calgary offices. He welcomes your questions at
[email protected] (mailto:[email protected]) .
Answers are not intended as legal opinions; readers are cautioned not
to act on the information provided without seeking legal advice on
their unique circumstances. Follow Noce on Twitter at @RobertNoce.
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Capital reserve fund exists to minimize special assessments | Edmonton Journal
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