Second Opinion on Reserve Funds

Gerry Hyman has another article for the Toronto Star.  Let’s discuss some of the questions:

QUESTION:  Our board has received a reserve fund study which, if implemented, will bankrupt our corporation. We directors believe that the numbers in the study are out of whack. Is the board obligated to follow the recommendations of the study?

ANSWER:  The Condominium Act requires the board, within 120 days of receiving a reserve fund study, to produce a plan to raise the money for the reserve fund. The board must ensure that the amount will be adequate for the major repair and replacement of the common elements — which is the purpose of the reserve fund.

The board must send owners a notice containing summaries of the study and the plan — and a statement of any areas in which the plan differs from the study. While the plan may differ from the study, it cannot render the reserve fund inadequate for its intended purpose.

If the contributions required by the study are necessary for the estimated cost of future repair and replacements of the common elements, then the board’s plan cannot reduce the contributions set out by the study.

If the board determines that the amounts required by the study have been incorrectly calculated, the board’s plan may set out amounts determined by the board to be correct — provided that the notice to the owners reveals the difference between the study and the plan.

At the same time, the Board is also free to hire a second Engineer to perform a Reserve Fund Study.  Nothing in the Condominium Act stops the Board from doing so.  However, the second Engineer may also come to the same conclusion.

Of course, the Board is free to come up with its own plan for funding work.  However, it should consult someone with a financial background to help with the process.  Although, it is still far better for the Board to just get a second opinion.

Of course, why did the Board not see a draft copy of the Reserve Fund Study, or insist on one?  They could have stopped this from occurring if they had as they could have brought up their concerns prior to the official copy being sent to them, which now puts them in a bind.  Also, if the draft shows that the Engineer is expecting them to do a lot of expensive work, it would have given the Board time to fire the first Engineer and hire another Engineer.

Of course, technically the corporation will not go bankrupt.  It will simpy have to implement one of four options:

  1.  One or more Special Assessments in order to collect the required money.  This could be handled on a year to year basis as the work is performed.  If the Board doesn’t require the extra money then no Special Assessment would be used in a given year.
  2. Increase the Maintenance Fees.  This would allow the Board to put more money into the Reserve Fund each year.
  3. A Special Assessment, plus an increase to the Maintenance Fees.  The Board could implement a small Special Assessment in addition to an increase in the Maintenance Fees.
  4. A Bank Loan.  The Board could take out a loan when required.  However, this would require a Borrowing By-law with the majority of unit owners would have to approve.  Also, this will lead to higher Maintenance Fees as the corporation will have to pay back the loan.

Of course, some owners may have to sell, and if enough of them have to sell then the values of the units would decrease.  However, at the same time, if a lot of work is required, hence the concern, then there is likely more going on in the condominium as it sounds like work has not been properly performed in the past, or at least put off for a period of time.

Another question raised was:

QUESTION:  Our property manager has advised me that there is a law prohibiting the parking of a commercial vehicle in our underground parking area. My Dodge Ram 1500 is our family truck — not a commercial vehicle. What can I do?

ANSWER:  You might write to the board pointing out that your vehicle is not a commercial vehicle. You might advise the board that, if necessary, you will engage a lawyer to take steps to enforce your right to park your family vehicle.

Of course, the Condominium Authority of Ontario (CAO) should be able to help out here.  But, I agree that a lawyer’s letter may help.  For starters, a lawyer will likely demand to know what law the manager is claiming and will likely be able to show how your vehicle is not a commercial vehicle.

And lastly, we have this question:

QUESTION:  A couple in our building play their music with loud, heavy bass. The board advised that a letter was written requesting them to lower the volume, but that there’s nothing else the board can do. That doesn’t seem right. Please advise.

ANSWER:  The board could require mediation between the corporation and the loud unit owners. The mediator — to be agreed upon by the corporation and the unit owners — will act as a conciliator to resolve the disagreement. Should the mediator determine the problem can’t be resolved, the matter will automatically proceed to arbitration. The arbitrator will render a binding decision, which could include an order that the unsuccessful party reimburse the successful party for the costs of the arbitration.

As with the question above, this is another area the CAO could be allowed to help out with.  The Board should be taking a tougher stance on this.  Other unit owners and residents have the legal right to ‘peaceful enjoyment’ of their unit.  As such, the noise is totally unacceptable and should be dealt with swiftly.

About Edward Brain

I am a long time condo activist and have a background in Business Administration.
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