Continuity
The Condominium Authority of Ontario's September 2024 report highlights concerns over the financial health of condo reserve funds. It emphasizes the need for better planning, collaboration, and owner education to ensure long-term viability of condominiums.
Special assessments and the state of reserve funds are becoming a central concern for condominium communities across Ontario, according to Condominium Authority of Ontario (CAO)’s Report on Reserve Fund Survey Findings, released September 2024. The report, which compiles data from over 6,000 condominium owners and 724 condominium corporations, reveals several critical insights into the financial health of condominium reserve funds and how inflation, rising construction costs, and awareness gaps are impacting both condo boards and owners.
The rise in special assessments is one of the key trends highlighted in the report. Special assessments, which are one-time charges imposed on condo owners when there is a shortfall in reserve fund contributions, have been increasing in recent years. Between 2018 and 2023, 16% of respondent corporations reported issuing special assessments to meet reserve fund needs, and in 2023 alone, the average special assessment amount per voting unit was $3,525. While this is a significant financial burden for owners, the report stresses that if these funds are used wisely, they can be an important investment in the longevity of the property.
The report also indicates that steep increases in common expenses fees, including contributions to reserve funds, are on the rise. This is largely driven by inflation and the increasing cost of construction, which has created challenges for condo corporations trying to maintain sufficient reserve funds.
The report reveals that forward-looking inflation rates used in reserve fund studies have increased significantly in recent years. In 2021, most reserve fund studies assumed an inflation rate of 1% to 2%. By 2023, this had increased to 2% to 3%,with some studies assuming rates as high as 6%. The increasing cost of repairs and replacements, driven by inflation, has led to a greater reliance on special assessments and loans to meet reserve fund requirements.
For condo corporations, maintaining an adequate reserve fund is not only a legal obligation under the Condominium Act, but also critical for preserving the value of their property. The rising cost of building repairs makes it even more important for corporations to ensure they are contributing enough to their reserve funds, which are set aside to pay for major repairs and replacements of common elements.
According to the CAO survey, nearly two-thirds of respondent corporations received recommendations to increase their reserve fund contributions by more than 3%,yet 79% of those surveyed indicated that their budgeted contributions would meet or exceed these recommended levels. However, the remaining 21% of corporations did not report meeting the recommended contribution levels, raising concerns about their ability to maintain sufficient reserves.
The report further highlights that two-thirds of standard condo corporations contributed more than 30% of their total budget to the reserve fund in 2023, with the average contribution per voting unit exceeding $2,000. Despite this, the financial pressures of rising costs mean that many corporations are still struggling to meet reserve fund targets without resorting to special assessments or loans.
One of the most striking findings of the report is the significant gap in awareness and understanding of reserve funds among condo owners. While 90% of condo owners who had never served as board directors reported some familiarity with reserve funds, only 43% were familiar with the CAO’s educational materials on the subject. This lack of awareness highlights the need for greater education around reserve fund management, particularly as rising costs make effective planning more crucial than ever.
Current and former board directors were far more likely to be knowledgeable about reserve fund requirements and CAO resources, with 100% reporting familiarity with key reserve fund notices. This suggests that those with direct involvement in the governance of their condominium corporations are more attuned to the financial obligations and challenges associated with maintaining a healthy reserve fund.
The CAO’s report emphasizes that the future of Ontario’s condominium sector depends on continued collaboration between condo boards, owners, and reserve fund experts. Proper planning, transparency, and communication are essential to maintaining adequate reserve funds and ensuring the long-term viability of condominium properties.
Moving forward, the CAO plans to enhance its educational materials and continue its efforts to raise awareness among condo owners and directors. New resources will be developed to support owners’ understanding of reserve fund notices and the importance of maintaining a healthy reserve. For condo boards, the CAO will introduce updates to its Foundational Director Training, with a focus on the financial responsibilities of reserve fund planning and the impact of inflation on long-term costs.
In the coming years, the CAO will also continue gathering data on reserve funds and working with experts to develop strategies that help condo corporations navigate the complex landscape of reserve fund management in a changing economic environment.
The findings of the CAO report underscore the growing challenges faced by condominium corporations and owners when it comes to managing reserve funds. The increasing reliance on special assessments and loans, coupled with rising construction costs, highlights the importance of proactive financial planning and collaboration.
For condo boards and managers, maintaining transparency and engaging owners in discussions about reserve fund planning is key to ensuring the long-term sustainability of their condominium communities. Effective project management, particularly for large reserve fund projects, can go a long way in controlling costs and preventing unexpected financial shortfalls.
With tools like Managemate, boards and managers have access to project management features that streamline the oversight of reserve fund projects. By organizing and tracking these projects in real-time, boards can make more informed decisions, avoid delays, and ensure that reserve fund contributions are being used wisely. Good governance and transparency are not just about knowing the numbers—they are about keeping every stakeholder informed and involved throughout the lifecycle of a project.
By adopting a more organized and structured approach to managing reserve fund projects, condo corporations can better plan for the future, minimize the need for special assessments, and maintain the financial health of their communities.
Ultimately, maintaining a healthy reserve fund is a shared responsibility, and with the right tools and strategies in place, condo boards can be better prepared to face the challenges ahead.
August 16, 2024
Special assessments and the state of reserve funds are becoming a central concern for condominium communities across Ontario, according to Condominium Authority of Ontario (CAO)’s Report on Reserve Fund Survey Findings, released September 2024. The report, which compiles data from over 6,000 condominium owners and 724 condominium corporations, reveals several critical insights into the financial health of condominium reserve funds and how inflation, rising construction costs, and awareness gaps are impacting both condo boards and owners.
The rise in special assessments is one of the key trends highlighted in the report. Special assessments, which are one-time charges imposed on condo owners when there is a shortfall in reserve fund contributions, have been increasing in recent years. Between 2018 and 2023, 16% of respondent corporations reported issuing special assessments to meet reserve fund needs, and in 2023 alone, the average special assessment amount per voting unit was $3,525. While this is a significant financial burden for owners, the report stresses that if these funds are used wisely, they can be an important investment in the longevity of the property.
The report also indicates that steep increases in common expenses fees, including contributions to reserve funds, are on the rise. This is largely driven by inflation and the increasing cost of construction, which has created challenges for condo corporations trying to maintain sufficient reserve funds.
The report reveals that forward-looking inflation rates used in reserve fund studies have increased significantly in recent years. In 2021, most reserve fund studies assumed an inflation rate of 1% to 2%. By 2023, this had increased to 2% to 3%,with some studies assuming rates as high as 6%. The increasing cost of repairs and replacements, driven by inflation, has led to a greater reliance on special assessments and loans to meet reserve fund requirements.
For condo corporations, maintaining an adequate reserve fund is not only a legal obligation under the Condominium Act, but also critical for preserving the value of their property. The rising cost of building repairs makes it even more important for corporations to ensure they are contributing enough to their reserve funds, which are set aside to pay for major repairs and replacements of common elements.
According to the CAO survey, nearly two-thirds of respondent corporations received recommendations to increase their reserve fund contributions by more than 3%,yet 79% of those surveyed indicated that their budgeted contributions would meet or exceed these recommended levels. However, the remaining 21% of corporations did not report meeting the recommended contribution levels, raising concerns about their ability to maintain sufficient reserves.
The report further highlights that two-thirds of standard condo corporations contributed more than 30% of their total budget to the reserve fund in 2023, with the average contribution per voting unit exceeding $2,000. Despite this, the financial pressures of rising costs mean that many corporations are still struggling to meet reserve fund targets without resorting to special assessments or loans.
One of the most striking findings of the report is the significant gap in awareness and understanding of reserve funds among condo owners. While 90% of condo owners who had never served as board directors reported some familiarity with reserve funds, only 43% were familiar with the CAO’s educational materials on the subject. This lack of awareness highlights the need for greater education around reserve fund management, particularly as rising costs make effective planning more crucial than ever.
Current and former board directors were far more likely to be knowledgeable about reserve fund requirements and CAO resources, with 100% reporting familiarity with key reserve fund notices. This suggests that those with direct involvement in the governance of their condominium corporations are more attuned to the financial obligations and challenges associated with maintaining a healthy reserve fund.
The CAO’s report emphasizes that the future of Ontario’s condominium sector depends on continued collaboration between condo boards, owners, and reserve fund experts. Proper planning, transparency, and communication are essential to maintaining adequate reserve funds and ensuring the long-term viability of condominium properties.
Moving forward, the CAO plans to enhance its educational materials and continue its efforts to raise awareness among condo owners and directors. New resources will be developed to support owners’ understanding of reserve fund notices and the importance of maintaining a healthy reserve. For condo boards, the CAO will introduce updates to its Foundational Director Training, with a focus on the financial responsibilities of reserve fund planning and the impact of inflation on long-term costs.
In the coming years, the CAO will also continue gathering data on reserve funds and working with experts to develop strategies that help condo corporations navigate the complex landscape of reserve fund management in a changing economic environment.
The findings of the CAO report underscore the growing challenges faced by condominium corporations and owners when it comes to managing reserve funds. The increasing reliance on special assessments and loans, coupled with rising construction costs, highlights the importance of proactive financial planning and collaboration.
For condo boards and managers, maintaining transparency and engaging owners in discussions about reserve fund planning is key to ensuring the long-term sustainability of their condominium communities. Effective project management, particularly for large reserve fund projects, can go a long way in controlling costs and preventing unexpected financial shortfalls.
With tools like Managemate, boards and managers have access to project management features that streamline the oversight of reserve fund projects. By organizing and tracking these projects in real-time, boards can make more informed decisions, avoid delays, and ensure that reserve fund contributions are being used wisely. Good governance and transparency are not just about knowing the numbers—they are about keeping every stakeholder informed and involved throughout the lifecycle of a project.
By adopting a more organized and structured approach to managing reserve fund projects, condo corporations can better plan for the future, minimize the need for special assessments, and maintain the financial health of their communities.
Ultimately, maintaining a healthy reserve fund is a shared responsibility, and with the right tools and strategies in place, condo boards can be better prepared to face the challenges ahead.
