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Can a condominium board use reserve funds for an item not included in the reserve fund plan?
Posted : 11/11/2017 2:33 am
PhilR
Here is an important article from Robert Noce.
This question comes up over again from emails I received in the past year from condo owners and is a breach of the Condo Act that many boards make where owners cannot seem to get any recourse nor is there any enforcement mechanism in place to hold boards accountable. This is another clear example that boards need to learn their responsibilities and the Condo Act!
Q: Can a condominium board use reserve funds for an item not included in the reserve fund plan?
A: No. Once a condominium corporation has obtained the reserve fund study, the board is required to put together a reserve fund study plan. It is this plan that will govern the condominium corporation with respect to capital expenditures. If a capital expenditure is outside of the reserve fund plan, then it would be inappropriate for the board to use reserve fund money to pay for an unexpected capital expense. The reserve fund money is not a slush fund to be used at any time. Rather, this money must be used in accordance with the reserve fund plan that was adopted by the corporation.
Helpful Hint: When in doubt, the board should seek a legal opinion to determine whether or not funds can be used for a particular purpose.
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0 Replies
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Posted : 04/06/2018 8:31 pm
WalterThis answer is correct, in my opinion, but our reserve study has categories that are very broad and thus easily enable a broad range of expenditures. To be more certain that an expenditure qualifies as a reserve fund expenditure a Corporation needs a comprehensive inventory of assets and a running schedule of major repairs and replacements of each of these assets. It surprises me that such inventories are not developed and maintained as would be required if Corporations had to capitalize and depreciate them for financial and for tax purposes.
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Posted : 10/02/2020 6:04 pmTheNack
This is a reply to Miss Condo and Walter:
Your understanding of a Reserve Fund Plan a little fuzzy. A Reserve Fund Plan is simply a reasonable plan for raising the funds projected in the Reserve Fund Study report. The projected funds are only possible requirements, almost never actual and will depend heavily on the thoroughness and skill of the report provider. The Board’s Reserve Fund Plan must be based on the report [Reg 23(4), 23(5).] regardless of the assumed accuracy of the report. It is not a plan for spending reserve funds. Although the Act requires Boards to approve a Reserve Fund Plan, the Act does not require Boards to develop a plan for spending Reserve Fund dollars.
Smart Boards, nevertheless, will develop Reserve Fund Budgets in which they plan maintenance and replacements of capital items on a preventive basis. Such budgets, when well planned, are very cost effective but difficult to prepare since the Board must monitor the “health” of the capital items and intervene before it breaks down. Emergency, or breakdown maintenance is almost always more costly than preventive maintenance. Simply replacing or repairing capital equipment on the basis of the time line reported in the Reserve Fund Report is a misunderstanding of the purpose of the Reserve Fund Report. It is not a maintenance plan, it is a plan for raising cash for future possible maintenance.
Having said all that, Boards must not spend dollars on items not listed in the Reserve Fund report. The projected time and costs projected in the Reserve Fund Report are only approximate, so Boards should only repair listed capital items on the basis of need and the consequences of an untimely failure. Repairs either earlier or later than what the Report suggests may be done without contravening the Act. However, if an item is not listed in the Report then it is likely it is not a capital item and thus only Operating budget dollars may be used for repairs/replacement. I is either that or if the Reserve Fund Study provider agrees the Reserve Fund Report may be updated to allow expenditures of Reserve Fund dollars on the item in question.
TheNack
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