Contingency fund

This is a document which projects the amounts to be paid by the co-owners in the short, medium and long term (up to 30 years) to the contingency fund.

This projection allows for the collection each year of the money needed to finance the work required on the immovable. The goal is to maintain the integrity of the building on an ongoing basis.

To this end, syndicates that pay only a small percentage of their expenses (5% to 10% per year, for example) into their contingency fund will undoubtedly face a significant increase in their “condo fees” in order to make up for the low contributions of previous years.

For more details: Coming into force of the bill on the regulation of building inspections and divided co-ownership

Contingency fund management strategy

Co-owners need to know the condition of the common portions of the property in order to plan for the replacement of building components when they reach the end of their useful life.

Co-ownership managers may use different strategies to replace equipment items depending on the situation.

Contingency fund study

Syndicates of co-owners will soon be required to have a study of their contingency fund done by an expert. Many co-ownerships have adopted good practices and are already doing so. Although it may vary in form, the contingency fund study is usually part of the asset management plan, which can be found in the register of co-ownership.

This study is very relevant, as it enables the syndicate to determine how much will need to be invested in the immovable in the coming years for major repair or replacement work required on the common portions. It allows prospective co-owners to know what they can expect in the future, and to determine whether the syndicate’s contingency fund is sufficient.

The asset management plan is a report drafted by an expert. It aims to identify the nature and cost of work to be done on the common portions over time in order to maintain them in good repair.

The asset management plan is normally made up of three documents*:

• certificate of the state of the immovable;
• contingency fund study;
• maintenance log.

Under article 1068.1 C.C.Q., the seller of a fraction will be required to give the prospective buyer a certificate from the syndicate attesting to the state of the co-ownership.

This obligation only comes into force on the day when a new board of directors is appointed, once the developer loses control over the syndicate.

*For more information on this topic, see the section entitled “Quality and inspection of the immovable held in divided co-ownership”.

How can one tell if the contingency fund is adequate?

The Civil Code of Québec indicates, as a guideline only, that the contribution to the contingency fund must be at least 5% of the contribution to the co-owners’ common expenses.

However, no co-ownership can survive with contributions around the 5% stipulated in the Civil Code of Québec. The directors must calculate the costs of major repair or replacement work on the common elements. Regardless of the result of this study, at no time and in no way should the contingency fund be lower than 5% of common expenses.

Easy-to-use indicators

Currently, it can be assumed that a co-ownership in which the co-owners contribute less than $700 per year per unit is one that will face problems down the road. Higher contributions must therefore be set. An increasing number of co-ownerships have annual contributions above $1,000 per co-owner.

Another indicator that can be used is the reconstruction value that is indicated in the co-ownership’s insurance policy. This is a more reliable indicator than a percentage of common expenses.

Funding of the contingency fund of a horizontal syndicate

Funding the contingency fund of a horizontal syndicate can be done in two ways, depending on the terms of the declarations of co-ownership, i.e.:

• Payment made directly to the horizontal syndicate by the owner;
• Payment made to the vertical syndicate, which then contributes to the horizontal syndicate fund based on a share (more common).

Where can one find the amount of the contingency fund?

From the syndicate of co-owners using recommended form Request for information to the syndicate of co-owners (RIS).

 

Bill 16

CONTINGENCY FUND

In Canada, eight provinces and one territory make it mandatory for a divided co-ownership property to carry out a contingency fund study.

According to a survey released in 2015 by the Regroupement des gestionnaires et copropriétaires du Québec, the Québec Federation of Real Estate Boards and the Association des professionnels de la construction et de l’habitation du Québec, 41% of 850 co-ownership directors stated that the sums available in their contingency fund would be insufficient when it came time to carry out major work.

In cases where the co-ownership is under the developer’s control, the amounts to be paid into the contingency fund by the co-owners must be equal to 0.5% of the reconstruction value of the building, until the developer obtains a fund study.

The board of directors of the co-ownership will have to commission a study to determine the amounts to be paid into its contingency fund. The annual contributions to the contingency fund by co-owners should be based on the recommendations of this study.

All studies must be carried out in accordance with the standards established by a regulation of the Government of Québec. This regulation will designate the professional orders whose members are authorized to carry out such studies. Work is scheduled by the government in 2020 to set these standards.

 

 

Financial statements

The financial statements are a set of documents evidencing the co-ownership’s financial situation. More specifically, these statements indicate the amount of money the syndicate of co-owners has, and its expenses.