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April 01, 2013

Ask Maria - Reserve fund vs. special assessment

Differentiating between a need and a graver need

Maria Bartolotti

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Dear Maria: I’m confused, what is the difference between a reserve fund and a special assessment?

Very good question. Lots of people get confused between the two.

A Reserve Fund is money set aside by the condominium corporation for major capital expenditures and repairs of building components, such as: roof replacement, windows, doors, irrigation systems, asphalt, fences etc. A portion of your condo fees go into this fund.

In Alberta, every condominium is required, by the Condominium Act of Alberta to have a reserve fund study completed every five years. The study is based on current and forecasted future costs. A 25-year funding plan is put in place to meet those future costs. With the changing economical conditions, it is recommended that the study be updated every two years.

It is the Board’s responsibility to prepare and approve a reserve fund plan based on the reserve fund study. The plan must show that sufficient funds will be available from a portion of the condo fees collected to repair or replace the common property as outlined in the reserve fund report.

A special assessment is an additional payment or a levy that a condo board has to impose when they do not have adequate funds to cover unexpected expenses that occur in the operating or capital reserves. Each owners’ payment is calculated based on the unit factor, the same way as the condo fees are calculated on a monthly basis.

In my experience, a special assessment is generally levied because of a large emergency repair, such as a recirculation line that requires immediate attention and replacement.

If a Board is considering a special assessment you can rest assured that this is their very last resort, having considered all their options before choosing to move forward with this one. Remember, board members are also paying the shared cost of the special assessment.

Communicating the special assessment to the owners is just as important as special assessing. I always recommend that the board give owners advance notice before special assessing. No one likes to be surprised when it comes to paying additional fees.

I trust I’ve been able to answer your question and look forward to hearing from you soon.

Until next time…

Condo Living Insider

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