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Condominium Fees and Reserve Fund Explained
The condominium corporation needs money to meet its financial obligations – paying for insurance premiums, snow removal, grass cutting, repairs to common property, reserve fund, etc. The main source of income for the corporation is the money paid by the owners in their condominium contributions (often referred to as a condominium fee) and Calgary townhouses for sale are no exception.
Contributions are normally set annually and paid monthly, however the board can levy special assessments (one or more lump sums) if the corporation needs to raise extra funds to meet its obligations.
The board sets contributions by taking into consideration the budgeted needs of the corporation and the unit factors (for each unit). Corporations can change the formula for allocating condominium contributions, if the owners pass a special resolution to amend the bylaws.
Make sure you know how your condominium contributions are calculated. Be aware that condominium contributions can and do go up!
• ask the owner’s mortgage company to pay the outstanding amounts and add it to the owner’s mortgage
• require an owner’s tenant to pay the monthly rent to the corporation to cover the unpaid condominium contributions
• file a caveat against the title to the unit at the owner’s expense
• charge interest (up to 18% per year on outstanding amounts)
• sue the owner for all outstanding contributions, interest and its full legal fees; and
• foreclose on the title to the unit.
The board of directors, elected by the owners, makes most of the decisions on the running of the corporation. As an owner of a unit you have the right and obligation to vote. Your voting rights are determined by the Condominium Property Act, the bylaws of your condominium corporation and by the unit factor for your condominium unit in Calgary Townhouses .
At most general meetings, votes are conducted by a show of hands. The bylaws clarify who has the right to vote if more than one person owns the unit.
Bylaws permit owners to ask for poll votes at meetings. In a poll vote the person’s share of the unit factor assigned to the unit determines the weight of that owner’s vote.
You may exercise your right to vote personally or by proxy. If you have a mortgage, the first mortgagee may have the right to vote in your place if it gives the Corporation written notice of the mortgage.
If you owe money to the corporation for 30 days or more on the day before a vote, you lose your right to vote.
Owners can vote on matters presented at any general meeting and on bylaw changes, changes to the common property and other matters permitted under the Act, regulation and the bylaws. It is important that owners vote to elect the board of directors and to change the bylaws
The Condominium Property Act requires that condominium corporations establish and maintain a capital replacement reserve fund to provide for major repairs and replacement of property and common property owned by the corporation. As buildings age they need to be repaired and maintained e.g. the roof of the complex needs to be replaced. The same is true of other parts of the common property such as the asphalt in the parking lot, underground utilities, or services and landscaping. Condominium owners must pay for the repair or replacement costs of the property owned by the corporation. The reserve fund is not used for repairs or replacements that are done annually.
Condominium corporations registered before September 1, 2000 must have completed a reserve fund study and a reserve fund plan by September 2002. Reserve fund studies must be conducted every five years.
Condominium corporations registered after September 1, 2000, have two years from the registration date to do a reserve fund study and approve a plan.
The Act gives the board the responsibility and power to make decisions around the reserve fund. Although a responsible board will provide information to and obtain input from the owners, it need not consult the owners before making decisions on the reserve fund. As in the case of Calgary townhouses.
The board must
• engage a qualified person to conduct and prepare a reserve fund study
• receive a reserve fund report from the qualified person
• prepare and adopt a reserve fund plan
• provide a copy of the approved reserve fund plan to the owners before implementing the plan
• maintain the reserve fund at an appropriate level so that the corporation can meet the statutory requirements
• maintain the reserve fund in a separate trust bank account and not combine the funds with other corporation funds except when bills are paid under the reserve fund plan, and ensure all managers or other persons handling the corporation money do the same
• prepare and provide to the owners, before or at the time of giving notice of every annual general meeting, an annual report on the reserve fund; including the opening balance, money in and out, where the income came from, what money was spent during the year, and the list of property repaired or replaced and the costs incurred for the repair or replacement; and
• not use the reserve fund for “improvements” unless the owners vote by special resolution to allow it. Improvements are normally changes, enhancements, alterations or additions to the common property or property owned by the Corporation which are not listed in the reserve fund study report.
How much money should be in the reserve fund?
Each condominium corporation will have a different amount in its reserve fund. The corporation determines how much money it should have in its reserve fund by completing a reserve fund study. The reserve fund study is prepared for use by the condominium board, owners and buyers. It is not reviewed by the government.
How is the reserve fund funded?
Corporations may meet their funding requirements by
• increasing condominium contributions (permanently or for a set period)
• levying special assessments (immediately or in the future)
• borrowing money
• using any combination of the above requirements.
This gives the corporation maximum flexibility as to how and when to deal with repair and replacement costs, while at the same time enabling it to deal with any potential surprises and undue hardship for owners.
For example, if the corporation does not have enough money in the reserve fund to cover significant repairs or incurs other large unexpected expenses, the board may require each condominium owner to pay a special assessment to cover the costs.