Since 1994, the law has required each condo syndicate of co-owners to establish a contingency fund for their condo. Another legal obligation was imposed on condos with the entry into force of Bill 16 on January 10, 2020. In effect, since that date, each condominium has been required to conduct a contingency fund study. Let’s take a closer look at what it is and what it entails.
The Formation of the Contingency Fund
How much should a contingency fund be?
In Quebec, the law requires each condominium to have a contingency fund. This is a special contribution apart from the budgets related to the condo association fees that cover the maintenance and day-to-day management of the real estate property. It corresponds to at least 5% of the contribution to the common expenses of the co-owners. However, 5% is clearly insufficient funds for the vast majority of condominium syndicates.
This reserve fund makes it possible to keep the building in good repair, regardless of the financial situation of each co-owner and should cover unexpected expenses.
What is the co-owner’s contribution to the contingency fund?
There is one main method for calculating the contribution of the co-owners.
The calculation method by component or percentage financed: an expert inspects the major components of the building and determines their physical condition and anticipated lifespan. The total annual contribution amount corresponds to the sum of the contributions for each component.
For what expenses can the contingency fund be used?
The administration fund is intended to pay for:
- Major repairs to the building;
- Replacement work in the common areas.
What happens if the fund can’t cover the expenses?
The fund is sometimes insufficient to cover major repairs or the cost of replacing common portions. In this case, the condo board, with the agreement of the general meeting, calls for a special contribution from the co-owners to complete the budget.
What is a contingency fund study and why conduct it?
Bill 16 introduced the obligation for condominiums to conduct a contingency fund study. Beyond its mandatory nature, it acts as a real management tool, much like the maintenance logbook. As it assesses the estimated cost of major repairs and replacements of the common portions, it helps precisely determine the amount of the contribution to the fund.
When should it be carried out?
By law, it must be done every 5 years.
How much does a contingency fund study cost?
Generally speaking, the cost ranges from $2,850 to $10,000, depending on the size of the syndicate.
Entrust the Management of Your Condominium to Professionals
Conducting a contingency fund study requires real expertise, as does property maintenance management more broadly. For sound management and a harmonious condo life in the short and long term, make contact for condo financial management and choose recognized specialists to manage your condominium: call on Condo Stratégis.