When is a condo reserve fund "okay"?
You may be familiar with the basics of how condo reserve fund studies work. Typically, they outline what the condominium needs to set aside every year for the next 30 years. At some point in this 30 year period, the condo reserve fund will drop down to quite a low level. The fund doesn't just keep growing and growing with no end in sight. As major expenses come up and are dealt with, the condo reserve fund gets drawn down and then it is replenished again over time. 
When I'm talking with a client after having reviewed their status certificate, the most common question I get asked is: "Is it okay?", or "Is the condo reserve fund okay?"
This is a difficult question to answer with a simple ‘yes' or ‘no'. The Condominium Act requires condos to have condo reserve fund studies prepared and that the condo reserve fund be what is called "adequate" at all times. What does "adequate" funding mean and what how much money does the Act require the condo to have set aside at any given point in time?
Lawyers specializing in condominium law have asked this question since the Act came into force in 2001. Because there is no definition of what "adequate" means, we probably won't know definitively what standard the legislation has actually imposed until there's a lawsuit arising from a condominium owner alleging that the condo did not have an adequate condo reserve fund.
My own definition of "adequate" funding is this: (1) Common expenses shouldn't be increasing beyond the rate of inflation every year; (2) The board shouldn't have to resort to special assessments to cover the costs of ongoing repairs and maintenance.
And (3) The condo reserve fund contribution scenario adopted by the Board should reflect that proposed in the reserve fund study. In determining whether a reserve fund is adequate or not, you need to examine whether or not the Board has implemented a reserve fund contribution scenario which is in keeping with the recommendations proposed by the engineer who prepared the reserve fund study. Usually, the engineer might present two funding scenarios, both of which are acceptable, and the Board chooses one. 
This blog entry is general information only and does not constitute legal advice. If you need legal advice, please speak to a lawyer.
Kerry Fox is a real estate lawyer practising in Nepean, Ontario. If you've got questions on condo reserve funds, please email me at info@kerryfoxlaw.com.
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