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Meaning & Purpose of a Condo Unrestricted Fund
shebacat
(@shebacat)
I live in a large residential Condo building that also have the following for owners to rent: 1) Guest suites, 2) An entertainment lounge, and 3) Extra second parking stalls and storage lockers. We also have recreational facilities on the common property grounds that the developer built.
Board recently passed the following two resolutions to spend the following amounts from the Corporation’s “Unrestricted Funds” account: 1) $11,817.75 to purchase a Sweeper/Scrubber for our parkade and 2) $3,968.17 for a Utility Cart, an Air Mover, and a Carpet extractor and shampooer. The Board is also planning on using this “Unrestricted Fund” account to replace one of the common property ground recreational facility that the developer built with a different capital improvement project.
As far as I am aware, there are only three types of account funding modules and spending requirements permitted under the Act: 1) s. 38 – Reserve Fund and, 2) s. 38.1 – Operating Account, and 3) s. 39.1 Special Levy.
I have written the Board, on more than one occasion, questioning the existence and composition of the corporation’s “Unrestricted Fund” and its use. So far, the Board have failed to provide me with this information.
Finally, if there exist such an item as a Condo “Unrestricted Fund”, how is it funded?
I would appreciate it very much if someone can provide me with an explanation.
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9 Replies
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MarkH
@shebacat, I think you are overly worried about the names of accounts. The CPA names the reserve fund and has detailed requirements as to what it can be used for, as you noted.
The corporation’s ‘Unrestricted Funds’ account is probably the operating account mentioned in the CPA S.38.1, used for everyday purposes.
The special levy mentioned in CPA S.39.1 is not an account but a vehicle for raising money other than by the regular ‘contributions’ which the corporation requisitions from all owners for the running of the condominium. A special levy is a blunt instrument for raising a large sum for a special purpose not foreseen in the regular budgeting process. The funds raised by a special levy might go to support the operating account, the reserve fund, an emergency repair or a special purpose.
I was taught that the normal process for adding items to the corporation’s budget and operating portfolio is to:
- Put the expensive acquisition (such as the parkade scrubber/sweeper) before the owners at the AGM or a budget meeting.
- If the owners approve the purchase, the project can go ahead.
- On the other hand, if the owners have confidence in the board, if the item was included in the recent approved budget, no borrowing is required and funds are available in the unrestricted operating account, the board could go ahead anyway.
Having made such a capital equipment purchase, a line-item should be added to the reserve fund and plan to ensure the acquisition is maintained from the reserve fund, or depreciated and replaced after a certain time to ensure the no-longer-new equipment is replaced before it breaks down irrevocably and needs to be replaced in a hurry – by a special levy.
Not knowing the details of the final item you mentioned, ‘to replace one of the common property ground recreational facility that the developer built with a different capital improvement project’, I can’t help you much except to observe that a new project replacing the old project supplied by the developer may well be a better facility for the condominium. Spending the money from the operating fund ties in with what I was taught; the maintenance of the new project should be included in the reserve fund, as I noted above.
A caution to the above would be the size of the expenditure on ‘a different capital improvement project’. Your bylaws may require that borrowing money for such a project be subject to approval by the owners, not just approved by the board.
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GibsonT
We have to remember that the condominium Board of Directors is the only authority that can spend money on behalf of the corporation. While it may be wise for them to consult with / ask owners for advice on some spending issues, they are the only authority and are not required to get that feedback.
Possibly the best way to proceed, is to place a question at the next AGM or SGM of the Treasurer/Auditor, who will know more about the general expenditures of the corporation.
While the Condominium Property Act only mentions the 3 headings you quote, it can be wise planning for a Board to have other ‘reserve like’ accounts.
For example, with insurance deductibles frequently in the $50-100K range, a wise Board might consider establishing an insurance reserve.
Remember too that special assessments/levies frequently come from events that you cannot plan for – in which case having some contingency reserves makes pretty good sense, in my opinion.
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shebacat
Thank you for your response. However, I would appreciate it very much if you can provide me with further clarification regarding the following:
You stated that the Board of Directors is the only authority that can spend money on behalf of the corporation. However, it is my understanding that this does not give the Board a blank cheque to spend money as it please without first complying with the Act. (Ref: “Boily v. Carlton Condominium Corporation 145, 2013 ONSC 1467”).
I support your suggestion of other “reserve like” accounts. However, for full transparency, can you tell me under which of the two main account groups this will fall (Reserve Fund or Operating Account) or should it be a completely new account group without violating the Condo Act?
Instead of raising a “Special Levy”, as per Condo Act s. 39.1, to replace one of our common property ground recreational facility that the developer built with a completely different capital project, does our Board have the authority to use our Corporation’s existing “Unrestricted Funds” / “Operating Account Funds” or our “Reserve Fund” to fund this project?
Can the Board replace our existing common property ground recreational facility that the developer built with its planned different capital project without first obtaining an owners’ approval vote to amending the Condominium Plan? (Ref: Condo Regulation s. 71(1) (a) & (d)).
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shebacat
@MarkH-2
The following are my comments to your contribution to which I thank you:
You stated that the Unrestricted Fund is probably the operating account mentioned in CPA s. 38.1. I agree with you and this is why I am seeking clarification about this expenditure using this account, without owners’ approval, for two first-time capital equipment purchases that never existed in any form. Had the equipment existed, I would have no problem with the purchase amount coming from the Operating or Reserve Fund accounts.
With respect to what you were taught about adding items to the corporation’s budget and operating portfolio, I agree. However, these two items are not listed, as line items, in any of our budgets and, owners were not consulted and given the opportunity to vote on these two original equipment acquisitions. (Ref: CPA s. 39(1) (a) and (b)).
With respect to the Board’s plan to replacing the existing common property ground recreational facility, that the developer built, with a completely different facility to serve a completely different activity/purpose, it is my view that the condominium plan would have to be first amended by an owners’ 3/4 approval vote and, funded by way of a “special levy” instead of the condo Unrestricted Fund / Operating Account. (Ref: CPA s. 39.1 (2) (d) & (3) and, CPR s. 71(1) (a) & (d)) & “Boily v. Carlton Condominium Corporation 145, 2013 ONSC 1467”).
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GibsonT
- Of course the Board of Directors is accountable to the Owners. They have to comply with the Condominium Property Act, CPA Regulation, bylaws AND if owners are unhappy, they can consider petitioning for an SGM (Special General Meeting).
- I would suggest this could be another form of reserve account and, in my opinion, it would probably not contradict the CPA or CPA Regulation.
3/4: If the board is not replacing something, they cannot use the replacement reserve account and should receive 75% by owners for approval before proceeding.
Financial transparency: in my opinion, in accordance with board best practices, a board should provide monthly financial statements for all condo accounts, including operating (comparison to budget), reserves and any other ‘funds’.
We should probably have an accountant attend one of our Virtual CondoChats to discuss these types of questions further.
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MarkH
I think you are allowing your judgement to be clouded by referring to an ONTARIO court case which would not necessarily apply under ALBERTA legislation. In Alberta, the condominium board has the right to do what the condominium needs (subject to the CPA&R) which is broader than what some other provinces permit.
If the new development is on the common property, and if there are funds available, and if the board is confident it has the support of the owners, it can proceed. (It only has to be 75% and 7500/10,000 approval if a special levy is needed to fund the project or borrowing is involved outside the budgetary limits of the CPA&R and the bylaws).
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shebacat
In you questioning my judgement, I would like to point out that there are several Alberta Condominium court cases posted on Canlii Alberta website that refer to court cases in other provinces, including Ontario. For example: The Alberta Court of Queens Bench case of “Condominium Corporation No. 0312235 v. Scott. 2015 ABQB 171” in which the trial judge, in paragraph [27] cited: (1) The Ontario case of “Hamilton (City) v Equitable Trust Co, 201” and, (2) The Manitoba case of “Morguard Properties Ltd v Winnipeg (City), [1983] 2 SCR 493 (SCC).
The Ontario court case of “Boily v. Carlton Condominium Corporation 145, 2013 ONSC 1467” that I cited mirrors the Alberta Condo Act and its Regulations, regarding our Condo Board’s plan to wrongfully use our corporation’s “Unrestricted /Operating Account” and NOT a special levy, as per Condo Act s. 39.1 (2) (d) & (3), that I have already made you aware of, to replace our existing common property recreational facility that the developer built with a completely different capital project. In the Ontario case, the court ordered the Board to restore the common property to its original form and, for the board to pay costs to the successful owners.
Also, I have previously identified the applicable sections of the Act and its Regulations to support my position that there must be the passage of a Special Levy and an amendment to the condominium plan in order for our Board to replace the common ground recreation facility that the developer built with a completely different common property ground facility. In return, I would appreciate it very much if you will identify:
- The applicable sections of: 1) The Act and its Regulations, and/or 2) Court cases, if any, that state that: a) If there are funds available in the “Unrestricted Fund” account, which you think is probably the “Operating Account” and, b) If the board is confident that it has the support of owners, the project can proceed without violating the Act which calls for a “special levy” and the amendment of the condominium plan and,
- The Fund type identification and, a description of the how the Board can determine it has confidence support of the owners in order for the project to proceed without violating the Act or the Regulations.
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MarkH
I am not going to reply to the questions at the foot of your last post.
Two other members and I founded COFSAB to provide owner-to-owner or resident advice based on our best experience, and to promote best practices if the law seemed inadequate. I am not a lawyer and I am not an expert in condominium law. I am an experienced owner who has taken the training offered by the Canadian Condominium Institute – Southern Alberta Chapter, and I have been a trainer with the Board Development Program, now abolished by the UCP government.
COFSAB and the BDP advocate obtaining professional advice where it is needed. You are asking me to give you legal advice. I strongly suggest you consult a trained and skilled experienced condominium lawyer.
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I would Imagine you could find the answer to how the “unrestricted fund” is funded through the surplus of the operating. The corporation can allocate any surplus as it chooses, and surplus isn’t defined nor is a defined allocation of capital within operation defined…
Property managers have told me, you want roughly 2-3 months of contributions held.
So, anything above that may be surplus.
The future allocation of that is at the discretion of the Board.
