Reply To: Can a condominium board use reserve funds for an item not included in the reserve fund plan?

[Karen Bennett]

Posted : 10/02/2020 6:04 pm

TheNack

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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