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Reserve fund study considers the life span of each component in a condo development. This helps condo boards forecast costs for repairs or replacements down the line. The Condo Act only requires a 30-year plan outlining future needs. However, looking beyond that 30-year span provides valuable insight into some of the more costly repairs and replacements.
Here’s how looking beyond 30-years can improve your reserve fund studies.
The 30-Year Plan
First let’s consider what the 30-year plan includes:
- Reviews of known problems, a history of repairs, and anything slotted for maintenance or replacement
- Visual inspections to identify existing problems assess the current condition of elements, as well as a general assessment to estimate the remaining life expectancy of common elements
- A review of:
- All existing warranties, guarantees, and service contracts
- As-built drawings for architectural, structural, mechanical, electrical, and plumbing elements; building specs; and plans for underground elements such as site services and grading, drainage, landscaping, and communication installments
- Repair and maintenance records and schedules
While these considerations are important for the reserve fund study, they omit some of the most expensive element repairs and replacements commonly required just beyond 30-years.
At 30-years and over, the building’s water and electrical distribution infrastructure and elements with concrete such as balconies or garage slabs will be in dire need of repair or replacement. Because these elements are so expensive, the minimum 30-year component inventory and cash flow analysis do not work. Experts in the industry are now looking at expenditures over a 40- or even 50-year period to avoid special assessments. Although experts understand it is hard to estimate costs this far out, you still have the expenditures accounted for in the reserve fund study.
The different materials used by modern developers also impact the 30-year model. A good example is a shift towards precast concrete cladding or an aluminum and glass window-wall system. With an expected life span of 50-years, these costs don’t appear in a standard reserve fund study plan. As a result, the costly expenditure leads to financial issues in the future.
A common practice is to overlook major costs beyond the 30-year mark such as parking garage slab replacements or underground water mains. When this happens, the 30-year plan inadvertently hides the most expensive projects even though they will have a major impact on cash flow. The end result is, once included these costs greatly disrupt available funds and cash allotments. In such cases, increasing condo fees or special assessments becomes the only solution.
If you stick with the 30-year reserve fund study plan, adding a warning in your status certificate that major expenses beyond 30-years are not included is recommended in paragraph 12. A statement that the reserve fund study does not include these costs lets buyers know condo fees or the need for special assessments might arise.
Proper management with a preventative strategy helps ensure your finances remain sound. The condo experts at CPO Management Inc, property management company in Toronto and the GTA, can assist your condominium in effective management to ensure repair and replacements costs are minimized and finances are always available. Contact us today.