Few people realize that when they buy a condominium, they are also buying into a fi-nancial entity known as the condominium corporation, which is run by a board of direc-tors comprised of unit owners. The corporation ensures that the common elements of the condominium’s building and grounds are maintained properly and that owners abide by the bylaws.

Every year the board of directors creates a budget for regular maintenance and land-scaping. The funds for these endeavours represent a portion of the condominium fees. Corporations also designate a portion of the condo fees for the reserve fund — which is essentially the corporation’s savings account used to accumulate monies for the re-placement of capital items not repaired or replaced on an annual basis.

“This would include things like roofs, fences, siding, boilers and that sort of thing,” explains Phyllis Fyckes, president of Condo Diagnostics, a Calgary-based condominium document review company.

In September of 2000, the Alberta Condominium Property Act was revised. It now stipulates condominium corporations must designate a qualified person to conduct a Reserve Fund Study every five years and draw up a report based on the findings. The report should: identify what property may need to be repaired or replaced within the next 25 years; assess the present condition of the property; and estimate the costs associated with repair or replacement.

Based on the Reserve Fund Study, a condominium corporation determines how much money it should have in the reserve fund.
Fyckes notes that the board has the discretion to decide whether or not it will provide for the exact amount of estimated costs outlined in the study. “They can create their own board plan for how the reserve is going to be funded,” says Fyckes.

In addition, oftentimes things don’t happen on schedule. For example, the Reserve Fund Study may have estimated the roof will last until 2020, but something happens, and it fails in 2010.  If the money isn’t in place to repair it, then owners face the rather grim prospect of paying a special assessment to cover the shortage. And, there is no cap on the amount that owners can be assessed for repairs. “The board has a responsibility to ensure that the work gets done so that the complex stays in a good state of repair,” says Fyckes. “ If it’s any consolation, board members are also owners and, if a special assessment occurs, they have to pay it as well.”
Keeping all of this in mind, it becomes even more important when purchasing a condo-minium to thoroughly review the corporation’s financial statements.  Fyckes recommends asking for a monthly financial statement instead of an annual one. “Financial statements are audited only once per year, so you are looking at old numbers when you review the annual financial statements.” 

She also suggests reviewing the most recent Reserve Fund Study.  “You will have to ask for it and probably pay a reproduction charge, but you absolutely need to look at it, because it gives you an idea of what condition the structures are in,” says Fyckes. CL