|
RFund has a purpose. It's purpose is to provide a tool whereby Boards of Directors of co-owned properties can
continually track
the health of their reserve funds. RFund's “position” is that even if periodic studies are carried out, the gaps between studies allow sufficient time for the fund to deteriorate — a condition that can be avoided with proper vigilance.
We know that properties have run into trouble by taking their eye off the ball, and we're attempting to collect opinions, articles and ex-periences. An often-heard opinion is that most properties could be doing a better job of keeping on top of their reserve fund picture. Do you have any Horror Stories to share? …
Can You Contribute?
Reading this, you may be a a Board member, a Resident, a Property Manager, a Reserve Fund Planner/Engineer, a Condo Lawyer or Accountant.
Our question is …  have you, yourself got “a story to tell”?
If so, we'd appreciate hearing from you. Reading about near-disasters — (or actual disasters!) — experienced in the co-owned property field can be compelling reasons for beginning to sit up and take notice. Please
contact us if you can supply a paragraph or two on the subject.
Stories & Articles
The following articles were selected for their particularly thoughtful and learned way of expressing their authors' opinions on aspects of reserve fund management. We, at RFund, have added comments, in blue. Please note that the comments, in blue, are not the work of the authors we've quoted.
Part of a question in the “Condo Law'” section of The Toronto Star August 6th, 2005
Our Board presented a reserve fund plan, based on a reserve fund study, that called for greatly increased reserve fund contributions to provide for expected repairs in excess of $2 million dollars over the next ten years. The reserve fund had been depleted as the result of
unexpected major repairs … Our building is deteriorating and I'm afraid that we will be faced with a special assessment in the thousands of dollars when we are confronted the necessary major repairs.
The key words here? “Unexpected major repairs”. The reality is, they happen. The answer to handling them is to track them continually to know where your headed at all times.
From the article “When is a Reserve Fund Adequate” in CM Condominium Management magazine, Summer 2004, by James Davidson
… Note that condominium corporations plan for an adequate reserve fund. It's not possible to ensure that the reserve fund will always be
adequate, because things don't always go according to plan. Condominium corporations can be knocked off track by actual or anticipated events that are not in keeping with the reserve fund plan. When corporations are knocked off track, they must:
Plan to get back on track with reasonable haste; … In my view, the overall idea behind reserve fund management is to arrive at contributions that can remain constant from year to year. I believe that the ultimate goal of reserve fund planning is to avoid increases/special assessments. Therefore, I believe that a reserve fund is adequate when the contributions are such that they can be kept
constant. (By “constant,” I mean that the contributions increase by inflation from year to year. Increasing the contribution by inflation keeps the contribution constant, in real terms.)
This article mirrors our thoughts exactly. “Things don't always go according to plan”. Right. That's why keeping on top of the balances — today's' and projected balances — is a must. “Plan to get back on track” — yes, fix the contributions levels if required. The reference to “constant contribution levels” — well, we say … a smooth plan is a good plan.
From “Condo Law' a publication of the firm NelliganO'BrienPayne, Winter 2004
What happens if, in between studies or updates, the corporation faces an unplanned expense
to the reserve fund? … once you remove funds for a project that was not anticipated or if you remove funds prior to the date anticipated by the plan, you create a potential shortfall in the funds required for other work. The board and perhaps the manager must then examine the Plan and try to determine whether or not the impact on the reserve fund is such that an
adjustment to the contributions may be required.
Again, the specter of “an unplanned expense”. They can't be avoided, but the consequences can be managed. Did you know that RFund can easily do “what-if” funding scenarios? Makes adjusting the contributions a lot easier.
By Kim Coulter
Coulter Building Consultants Ltd. Consulting Engineers & Building Scientists
The Condominium Act has increased the role of the condominium's Board of Directors with respect to its fiduciary duty to the owners in ensuring the common elements and assets are properly maintained. The Act gives the Board one of the necessary tools in this regard; a Reserve Fund Study. Boards
should be referring to it on a regular basis and treat it as a planning document to assist in ensuring the financial health of the condominium's Reserve Fund.
We agree with Mr. Coulter. May we add that another tool is now available, namely RFund.
From an article by Warren Kleiner of the law firm Miller Thomson LLP
Hopefully, more engineers will start suggesting a wider range of plans
that ensure that the fund will be adequate but that do not all focus on the principle of achieving inflationary increases and the adequacy and consistency of the funding instead of the adequacy of the fund itself. Until a court interprets theses
provisions of the Act we will not know the answer. It is prudent for a board to at least ensure that at all times planned contributions are adequate to cover expected repairs and replacements throughout the duration of the plan and that the suggested minimum is always maintained, without resorting to special assessments or borrowing.
One of RFund's strengths is the ability to generate an unlimited number of scenarios using a variety of funding plans. The good ones seem to “leap out” at the user, and narrow down the choices to a few worthwhile alternatives.
Denise Lash—Miller Thomson LLP, Let's talk Condo Summer 2004, “Reserve Fund Obligations”
It is important that directors always keep in mind that as a board member, they may be personally liable
for failure to carry out their duties and a director may not be covered under the corporation's directors and officers liability insurance policy if such di-rector knowingly fails to comply with the provisions in the Condominium Act.
One of the duties of board members is to ensure that their reserve fund plan was carefully created, and meets recognized criteria for good funding. That's what RFund is really all about.
Audrey Loeb—Miller Thomson LLP, Let's talk Condo Fall 2003, “Unanticipated Reserve Fund Expenditures”
(Our excerpt is a bit long, but the well-made points merit it).
The next question is then the consequences of there being an unexpected expenditure
from the reserve fund. One possible interpretation of the Act is that the corporation is not permitted to make any expenditure from the reserve fund unless that expenditure is anticipated in the reserve fund study and the reserve fund plan. In my view, this is not the correct interpretation of the Act. Preparing a reserve fund plan that projects many years into the future is always going to be a bit of a guessing game. The exact timing of the expenditure and the exact quantum of the expenditure will always be an es-timate only. That the estimate will not always be accurate is obvious. In this case, for example, the roof was scheduled to be replaced in 2002, but the owners have managed to squeeze a few extra years out of it and that expenditure has not yet been made. There will be other cases where unexpected expenditures arise. In my view,
the condominium corporation can spend the reserve fund on major repairs, even if they were completely unexpected and unanticipated ...Expenditures of this nature from the fund are in the hands of the Board."
The next question the Court had to decide was what happens if an unexpected expenditure must be made from the fund and that results in a deficit position for the fund. The judge found that the Board had an obligation to
revisit the reserve fund plan and make any necessary adjustments
to the reserve fund levy to accommodate such an unexpected expenditure. The Court did go on to say that the statutory requirement for carrying out reserve fund studies is a minimum requirement only. He stated that if it becomes apparent that the initial reserve fund study is defective in some respects
that the Board has an obligation to re-examine the reserve fund study before the required statutory review.
Lots of good material here. The question of “unexpected expenditures” that we've underlined earlier. Re-visiting the plan to make adjustments — that's RFund's purpose in life, it's “raison d'etre”. Not waiting for the 3-year process, but re-examining the plan continually. All very sound opinions
|
