Treasurers' forum

Article from Volume 11, Issue Number 4, 2024

By Kirsten Bishop | Other articles by Kirsten Bishop | Feature

Treasurer forum focused on reserve funds and capital planning

Representatives of 25 condo corporations attended the CCI Manitoba Treasurers’ Forum on Aug. 14. Building types represented ranged from bare land to apartment style with commercial components and with the number of units ranging from eight to more than 150.

One very important topic of discussion throughout the forum was capital repairs, including reserve funds, special assessments and corporate financing.

How do we know what needs attention?

The Manitoba Condominium Act requires condo corporations to have a reserve fund study completed every five years. The studies provide information on the condition of the capital items at the time of the study and a projection of their life expectancy as well as an expected replacement cost at the end of the life cycle.

Boards of Directors should be referring to the summaries contained in the studies, which usually provide scenarios for projected funding options as follows:

Status quo, that is, based on the reserve fund current balance, contributions are kept at the same rate and repairs are done as scheduled by the study.
Increasing contributions over time to build up to the needed balance.
Immediate implementation of annual contributions to match the study’s ideal balance by the time funds are needed.

What compels us to get a report and follow it?

Most provinces require that condo corporations fund an ideal balance through annual contributions and some provinces require reserve fund study updates every three years. Manitoba only requires that condo corporations make contributions to the reserve fund each year and update reserve fund studies every five years.

Given the change in the market over the past five years, condo corporations should expect to see an increase in the required funding for the reserve fund based on the cost of materials and labour for all types of capital repairs, even if they have been taking good care of their capital components and fully funding their reserve fund.

Because the reserve fund study takes into account the useful life of the capital components, it seems fair that each owner should pay towards the ideal balance and therefore the portion of the life cycle of the capital components applicable to their term of ownership.

What if the reserve fund is not fully funded?

The risk for current owners is a special assessment or, alternatively, the condo corporation may need to access financing, which would be payable by all owners over time, similar to a mortgage or a loan.

The risk for new condo owners is that they probably will be paying a share of the previous owner’s use of the capital items by way of increased or catch-up contributions assessed to all owners or by special assessments or corporation financing payments.

Because the reserve fund study takes into account the useful life of the capital components, it seems fair that each owner should pay toward the ideal balance and, therefore, the portion of the life cycle of the capital components.

Sometimes, it is difficult to catch up. At other times there is reluctance by the board and/or unit owners to increase fees to fully fund the reserve fund.

When it comes to your investment, there are a couple of things to consider:

Would you have purchased your unit if you knew how much it was going to cost (fees) when you purchased?
If you needed to sell, would this be an attractive investment for another purchaser?

An important commonality is the Disclosure Certificate

what should be included?
who prepares it?
who signs it?

The Disclosure Certificate is a prescribed format and required under The Condominium Act to be provided to prospective purchasers when an offer is made. It's just one of the many documents a prospective purchaser has access to during the seven-day cooling off period. It is recommended that if the board has received a report indicating the need for a capital repair or is considering a major repair/upgrade, or is aware of an issue which may impact unit owners, then it should be included. Not disclosing information that the board has knowledge of may result in a legal situation, as discussed in a prior newsletter article. Disclosing more than may be required will likely not result in any legal issues.

If you have a Property Management Service, this document is likely prepared as part of the management contract. If so, the Board should review it regularly to ensure it is correct and up to date.

Some Boards prefer to prepare their own Disclosure Certificates

Who signs the document? Sometimes it is the Property Management and other times it is signed by an Executive Officer of the Board of Directors.

This document is binding and should be reviewed carefully before being provided. These have been decisions in other provinces whereby an owner was excluded from all special assessments during their term of ownership because a detail was left out of the Disclosure Certificate at the time of purchase.

To summarize, the discussion at this treasurers’ forum was very interesting and informative. We hope to be able to reach more of your treasurers at future forums.

Kirsten Bishop has over 30 years experience in the property management business, is an individual member of CCI Manitoba and is on its board of directors.