Was Your Condo Reserve Fund Study Prepared by a Qualified Professional?
Can anyone do a Reserve Fund Study? Yes if you are a Strata Corporation in B.C. and no if you are a condominium corporation in Ontario.
A recent article in the Vancouver Sun highlighted one of the differences between Ontario condominiums and Strata Corporations. This is something that has raised concerns for many in the condo industry including one of B.C.'s interest groups, the Condominium Home Owners Association.
In Ontario, only persons that fall within the “prescribed class” set out in the Condominium Act's regulations are permitted to do Reserve Fund Studies. Those persons must have a certain level of expertise and the regulations stipulate what designations or certifications are required. For example, persons holding a certificate to practice under the Architects Act, persons who hold a certificate of authorization within the meaning of the Professional Engineers Act and members of the Canadian Institute of Quantity Surveyors holding the designation of professional quantity surveyor fall within this prescribed class. The regulations also provide for instances in which a person is not qualified to carry out the Study, such as persons having any direct or indirect interest in a contract or transaction to which a director or officer of the corporation is a party, any spouse, son or daughter of a director or officer or a son or daughter of a spouse of a director or officer or any owner in the corporation. It makes perfect sense that those individuals doing these studies should remain impartial and have no interest whatsoever in the outcome of the final reports.
However, this is not so in B.C.
By the end of 2013 most Strata Corporations will be required to prepare Depreciation Reports (B.C. term for Reserve Fund Studies) unless the owners vote to exempt themselves from this and it appears that anyone can conduct these reports, even the Corporation itself.
This “do it yourself approach” sets a dangerous precedent by encouraging Corporations to look for the cheapest alternative and not get professionals to conduct these important reports.
Tony Gioventu of the Condominium Home Owners Association feels that this approach will be more costly in the long run. Owners obviously don't like to contribute now to items that will be required in the future, especially if they feel they will not be around to benefit from those repairs.
The expectation is that there will be more and more lawsuits when owners learn about extensive repairs with poor planning. In fact those law suits have already started and some consultants in B.C. are being sued for preparing negligent reports.
Depreciation reports similar to Reserve Fund Studies are complex studies that require a certain level of expertise. Strata Corporations should only be using qualified individuals with the proper insurance in place.
Getting these studies wrong can easily lead to ugly surprises when major repairs are required down the road that were never planned for, especially when owners are hit with large and unanticipated special assessments.
Comments (1)
Read through and enter the discussion by using the form at the endJerry Genge - February 7, 2013 10:40 AM
There are Reserve Fund Plans and there are studies that fund for capital repar and replacement. Reserve funds requirements have evolved from 5% of operating budget, to 10%, to minimum-10%, to "by qualified" persons, to the reality today which is that most reserve fund plans are conducted by Building Science Specialists who actual repair buildings. Sadly, the earlier years have left many older condos in a financial mess. Our study done 10 years ago on over 200 condo RF plans in the GTA (which CMHC funded but declined to publish), found much of the mess was attached to the application of minimum regulatory requirements rather than application of responsible stewardship of the property and buildings. The end result is that many of the older condos, with second and third generation owners mortgaged to the earlobes can't afford to pay for the necessary work. Many of those condos are townhouse corporations that have much lower operating budgets than muti-storey buildings with the same number of units, so they started out with less, continued to contrinbute less, and are now left with less every time the roofs, roads, buried pipes, windows, etc. need replacement.
Out of the CMHC study we developed the Condition Index tool. It helps condos understand that reserve fund plans are not just about funding. They are about retaining value and they are about reconciling funding against improvements. We also developed benchmarks to allow condos to compare their fund with the many others that are adequately funded.
Too often over my 30+ years at this, I have heard managers and Boards of corporations say "too much", "it won't sell", "but it's never cost that much", "we're self managed and do this work ourselves" and the worst of them all... " I don't want to pay for a (name the repair) I won't be here to enjoy". Then, sadly, they are hit with unfunded liabilities and have to special assess. Sometimes there neighbours have been put out of their homes - all due to a wrong-headed approach to planning for the future.
Its taken Ontario nearly 40 years to get it this close to right. Hopefully other regulators will learn from our experience.