As a result, the condition of the condominium property can deteriorate or you may be faced with substantial charges from the condominium to cover repair costs as they occur. Fortunately there are ways to determine the financial status of the condominium based on the documentation that the condominium corporation is obliged to keep, such as the annual operating budgets and end-of-year financial statements.

For resale condominiums, check the estoppel or status certificate. For new condominiums review the disclosure statement. An important part of the operating budget is the reserve or contingency fund.

The purpose of a reserve fund is to provide financing for major repairs and renewal projects over the life of the condominium building. The fund essentially ensures that the condominium common elements will be maintained in good shape for the life of the project. The amount required to be in the reserve fund depends upon the condition and life expectancy of all of the common elements in the building and the estimated cost to replace them over the life of the project.

The amount each unit owner is required to contribute to the reserve fund, usually via monthly condominium fees, is determined by estimating what would have to be set aside on a monthly basis to cover the long-term costs.  

Reserve fund studies are updated from time to time, depending on provincial regulations or at the discretion of the condominium corporation. The studies are conducted by professionals capable of assessing the condition of the common elements of the building, estimating remaining life spans and the related repair and/or replacement costs. Based on their observations, the reserve fund study professionals estimate the monthly or annual contributions necessary to fund the long-term renewal of the common elements.

After receiving the reserve fund study, the Board of Directors can propose a plan for the sustainability of the fund, including monthly contributions from owners as part of the condominium fees. In some provinces this is mandatory, while in others it is optional.  You do not want to move in your new home only to discover that the reserve fund is under funded and major repairs are required. This could mean a significant increase in condominium fees or the levying of charges, commonly known as special assessments, to the unit owners by the condominium corporation to pay for the needed repairs. Special assessment charges can be high depending on the type of work required. Ensure you obtain and review either the disclosure statement or the estoppel or status certificate to determine the current state of the reserve fund.

Courtesy CHMC Buyers Guide