Reserve funds in Alberta: the study, the plan and the five-year clock

The duty in the Act

Section 38 requires a corporation to establish and maintain, from owner contributions or levies, a reserve fund “reasonably sufficient to provide for major repairs and replacement” of its real and personal property, the common property and managed property, where the work “does not normally occur annually.” Reserve money may also pay for the reserve fund study and report themselves, and for other expert reports on the property’s condition (s. 38(1.01)).

The study: what it must contain

The corporation must retain a reserve fund study provider to study the “depreciating property” (Regulation, s. 23(1)–(2)). The study must determine:

• an inventory of all depreciating property that may need repair or replacement within the next 30 years, or longer;
• its present condition and when each component will need repair or replacement;
• the estimated cost, using costs no lower than those current when the report is prepared;
• the life expectancy of each component once repaired or replaced.

The provider must also find out how much is currently in the fund and inspect all visible components on site. They must interview the board, and the manager and others if needed, and review the condominium plan, construction documents and maintenance records. They then recommend how much should be added to the fund, and explain the basis for both figures.

The report and the plan

The provider’s written reserve fund report must state their qualifications and include a signed statement that they are qualified and not disqualified. It must also set out the findings (s. 23(3)). The board then reviews the report and approves a reserve fund plan: the method and amounts for funding the reserve (s. 23(4)). The plan must provide that, based on the report, sufficient funds will be available, through owner contributions or another reasonable method, for the repairs and replacements the report identifies (s. 23(5)).

The board must give owners a copy of the approved plan before collecting any money under it (s. 23(6)). The report and the plan are different documents. The report is the provider’s professional estimate. The plan is the board’s decision, which may fund the reserve differently from what the provider recommended. A buyer should read both.

When studies are due

Note what the five-year clock runs from: the approval of the most recent plan, not the date of the study or the report. A study that is “four years old” can still be overdue if the plan was approved later.

Who may prepare one

Section 21.1 lists the qualifying designations. They include professional engineers, professional and certified technologists, registered architects, and Accredited Appraisers Canadian Institute. Also listed are CNAREA Designated Reserve Planners and Designated Appraisers Commercial, Professional Quantity Surveyors, REIC certified reserve planners, and holders of the UBC Reserve Fund Planning certificate. The individual must also know that type of property, its operation and maintenance, and its repair and replacement costs.

Some people are excluded however qualified they are: directors, officers and employees of the corporation, its condominium manager, their partners and employees, close family of directors and officers, and any owner or occupant of a unit (s. 21.1(2)). A corporation whose plan has no more than 12 units may carry out its own study if authorised by special resolution (s. 22).

The annual reserve report

Each year the corporation must prepare a report on the reserve fund setting out at least (s. 29):

• the fund’s balance on the last day of the previous fiscal year;
• every payment into and out of the fund that year, with sources and uses;
• the property repaired or replaced that year and what it cost;
• the balance projected for the current year;
• payments into and out of the fund for the current year approved by ordinary or special resolution;
• the property projected to be repaired or replaced this year, and the projected cost.

This report goes out with the financial statements and budget before the AGM (Act, s. 30(4)).

What a buyer should compare

1. Plan date. When was the most recent plan approved? If it was nearly five years ago, a new study is imminent, and new studies often raise contributions.
2. Planned versus actual contribution. The plan sets an annual contribution. The statements show what was transferred. Persistent shortfalls compound.
3. Projected versus actual balance. The plan projects a balance for each year. Compare it with the closing balance in the statements.
4. Upcoming work. The study’s 30-year schedule shows the big items. What falls in the years you expect to own?
5. Report versus plan. Did the board adopt the provider’s recommended contributions, or a lower figure?

The reserve fund check runs these comparisons from the figures you enter.

Questions people ask