When purchasing a condominium unit, it is important to understand that condominium ownership not only includes paying the full cost of upkeep for the occupied unit, it also involves maintaining the common elements of the condominium complex. Common elements include everything that is not in the unit, including parking areas, internal roads and walkways, hallways, elevators, recreation centres and the lobby.
Common expense fees paid by unit owners can typically be broken down into two parts:
1) An amount (as set out in the Condo Declaration) typically expressed as a percentage, which goes towards the maintenance and operation of the condominium.
2) An amount, typically expressed as a percentage, that is set aside in a reserve fund.
The reserve fund is in place in the event of future major financial burdens, such as the replacement and maintenance of common elements.
Under the new rules of the Condominium Act, effective May 5, 2001, Condominium Corporations must complete a Reserve Fund Study every three years to evaluate the remaining life expectancy of EACH replaceable building component over a projected 30 year period. The Reserve Fund Study considers the projected replacement costs of each component, and prepares a financial plan to fund such replacements. Through these projections, recommendations are made as to what percentage of common expense fees should be deposited into the reserve fund. The amount deposited into the reserve fund is dependent on factors such as the current balance of the reserve fund, the existing state of repair of the condo complex etc.
The Condominium Board of Directors must propose a plan for funding the reserve fund within 120 days of receiving the recommendations of the Reserve Fund Study. Notice of the funding plan must be sent to the unit owners within 15 days of the proposal by the Board of Directors. From the moment unit owners are notified, the Board of Directors has 30 days from sending the notice to begin implementation of the funding plan.