What is a contingency fund condo study and why conduct it?
The capital set aside by a condo corporation for future major renovations, replacements, or repairs of common amenities/ elements of a condo building, such as rooftop terraces, plumbing systems, elevators, outdoor swimming pools, fitness centres, recreation centres, is what is known as contingency condo fund, or reserve condo fund.
Buyers are more likely to purchase a unit when they are assured that the building is being promptly taken care of. Ensuring good condition of the amenities, thus, count as essential selling features for the buyers. Therefore, Condominium Property Regulations require all condominiums to allocate a reserve fund with any legally established financial institution such as a bank, loan and trust corporation, or a credit union.
The contingency condo fund (or, reserve condo fund), which ensures that the condo corporation has enough capital to pay for future repairs, is replenished every month with a portion from the condo owner’s monthly maintenance fee deposit. The maintenance fee covers the expenses of more frequent maintenance such as window washing, snow removal, landscaping, and other minor repairs.
The contingency fund study is carried out to determine what portion of money should be reserved to manage the maintenance of common elements major renovations, replacements, or repairs are met. Beyond its mandatory nature – of calculating the cost of future major repairs, it also aids as a maintenance tool or logbook, and in understanding the projected cost of contribution.
The initial contingency condo fund study is conducted during the pre-construction phase. However, the preliminary study is only a paradigm based on various assumptions and information available at the time it is being prepared. These presumptions are variable in nature, hence, in addition to the preliminary study, follow-up contingency fund studies must be conducted every three years.
The contingency condo fund study includes, but is not limited to, the following details:
- Assessment of all parts of building that the condo corporation might have to repair or replace; such as the roof, exterior walls, windows, structure, common plumbing elements, common HVAC systems, common electrical systems, elevators, interior finishes, and other common site components,
- Estimating the timelines as to when these repairs or replacements are likely to be occurred,
- Estimating annual expenditure,
- Estimating a recommended reserve fund contribution,
- Estimating fluctuations in reserve fund contributions forecasted over upcoming three to five years,
- Emergency repairs, or,
- Additional assumptions.
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The ultimate goal of conducting a contingency condo fund study is to contribute to the overall financial health and long-term sustainability of the condominium community.
Also Read: Role and Importance of the Condo Reserve Fund Study for Appropriate Reserve Fund
Benefits of Well-Funded Reserves
The contingency/ reserve condo fund analysis is a clear, concise, and comprehensive report that allows condo corporation to:
- Managing predictable expenses and guaranteeing sufficient funds for future repairs,
- Financial preparedness and making wise, informed and long-term planning decisions,
- Estimate and plan forecasts monthly contributions,
- Manage other major projects stress-free,
- Comply with the regulations and legal requirements by maintaining transparency between owners and governing bodies,
- Maintain property value
In addition to the Benefits Listed above, it also helps in meeting:
- Emergency repairs or replacements,
- Poor maintenance decisions that result in having to replace common elements earlier than expected,
- Postponement of some expenditures, if stated with a valid reason and agreed by the condo owner’s and members of board.
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Ataur Rahman
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