Condominium Reserve Funds: How Much is Enough?

A lawyer explains everything you need to know about condo reserve funds

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A reserve study projects maintenance costs your condo can expect to pay, and it takes into account factors like the age of the building, what shape it's in, and what amenities you have [source: That final figure is only a recommendation, and condos don't always fully fund their reserves. If your reserve is 70 percent funded or more, you're probably in good shape [source: Smart buyers will check the percentage of their condo's reserve before buying. The laws about condo reserves and how often your HOA should conduct a reserve study vary by state. Some states - like Arkansas - have no laws about reserve studies, while Florida requires a reserve study every three years [sources: Not sure about your state's reserve study laws?

In a typical condo, 25 to 35 percent of your HOA fees should be going to reserves [source: If you can't volunteer to be on the board, you can still attend your condo's annual and budget meetings. A proper reserve study by an engineer will have line-by-line detailed summation of ALL the components of the building that will require replacement at end of useful life or preventive upkeep throughout the upcoming 30 years.

So a comprehensive and complete study covers all possible aspects of the building that will require replacement over time.

Nothing should be a surprise for a rainy day — if the study is done in a complete and diligent manner. Will the total cost be covered by the fund or will a special assessment be required? Bedford , Nova Scotia.

Responsibilities of an HOA

We, the residents, suspect our board of directors to be fraudulent, but we cannot afford a lawyer to investigate them. I have approached newspapers, condo associations and event the police, and nobody can help us. By law condo boards Financials must be audited by certified accounts appointed and accountable to the owners only.

They are not accountable to the directors or selected by the Board. Direct your inquiries directly to the auditors.

Audit expenses are condo corporation expense item. They should be present at annual meetings and not simply a audit report. It is the owners right. Is there a way to calculate what our reserve fund balance should be? Non profit verses profit generating corporations. Taxable profit is typically defined as income exceeding expenditure within a tax year.

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Reserve funds are exempt of profit tax. All funds in a reserve fund are owners money after tax contributions for future owner expenses 10, 20 to 30 years down the road. All in keeping with ontario condo laws as I understand. At 75 years old my chances of seeing a material return for repairs is very highly unlikely.

Future generations of owners will inhirate my contribution after tax dollars to guarantee their future repair expense. A kin to guaranteed income.. My contributions to the fund are non refundable including interest earned and non tax deductible. My Big question is How effective is the real estate industry at reflecting these funds as real property value. Current Reserve funds law must be projected over thirty years which is a crystal ball period based external consultants opinions and building science for repair and replacement only!

I do not know of any other law or corporate body the has this fiscal accountability period of 30 years. As a present owner like a corporate a share holder for the lack of a better description I have has no sense of ROI. As a past volunteer board member who has some CCI training courses certification plus the good fortunes of legal board support I remain astonished that board member of non profit condos do not require certified with proven experience to manage major corporate funds.

Audits who represent the owners preform annual due diligence for expenditures not specific to corporate declaration necessary and Ontario condo laws. I have absolutely no concerns of the board members honesty doing their best but I think the condo laws are expecting unreasonable reserves to cover long term repairs and replacements for future generations of unit owners.

Properties change ownership many times in a 30 years period. My taxable retirement income is funding future generations of tax free guaranteed expense income.

Why an HOA Needs Sufficient Cash Reserves

I also believe Status certificates for new owner are not available without an offer to purchase at purchases expense. I Think the status certificate should be part of the listing. Reserve funds are prepared by certified independent consultants by condo law and not the board of directors. The board only prepares operating budgets for the 12 month fiscal year which includes reserve fund contributions as separate line item account. If its townhouse condo then its sufficient as you own the water heater, heating system and things like that.

So there are lots element to this. If you are buying condo here then dont.

12 Comments

My Gramma is gooder than your typos Says GrammerNazi. Condo reserve funds should not be less than 1 million dollars. A healthy one will have more than 1 million. That's why the new condo, they are smart to ask for more maintenance fees.

It's to stop the short term owners to gain living in a new building, then when it's old they bail and move to other places.

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