Contingency Reserve Fund

The purpose of the contingency reserve fund is often misunderstood. Even when it is understood, the conditions under which expenses may be made from the fund is often misinterpreted. This questionnaire is meant to provide a clear answer about whether an expenditure is permitted to be made from the contingency reserve fund.

Important: This form is provided for convenience only and must not be used for legal purposes. If you have any questions, please contact your agent, or seek legal advice.

Purpose of the Contingency Reserve Fund

Occasionally we hear people speaking about the contingency reserve fund (the “CRF”) as being for savings for large capital repairs. While it is true that large capital repairs are the most significant expenses that contribute to the prudency to save, the purpose of the fund is broader than that. In general terms, the contingency reserve fund is meant for common expenses that do not usually occur or usually occurs less often than once per year. In other words, the frequency of the common expense is the main deciding factor of whether the expense is meant to be paid from the CRF or the operating fund.

Answer the following questions to help understand if an expense that has just accrued is permitted to be paid from the contingency reserve fund. Alternatively, use this tool to understand what type of approval is necessary to proceed with a proposed expenditure.

Is the subject expenditure permitted to be made from the contingency reserve fund?

Is the expenditure for a "common expense"?

yes

"common expenses" means expenses

relating to the common property and common assets of the strata corporation, or
required to meet any other purpose or obligation of the strata corporation;

The expenditure is not permitted. Expenditures are not permitted to be paid from the operating or contingency reserve fund if the expense is not (a) relating to the common property and common assets of the strata corporation, or (b) required to meet any other purpose or obligation of the strata corporation.

Does the expenditure usually occur less often than once a year or does not usually occur?

yes

Most common expenses which usually occur once per year or more often must be paid from the operating fund.

Most common expenses which usually occur less often than once per year may be paid from the contingency reserve fund or a special levy if approved or authorized under section 96 or 108.

Most expenditures which usually occur less often than once a year are not permitted to be paid from the contingency reserve fund.

There are a few exceptions. Continue to find out if an exception applies.

Is the expenditure necessary to obtain a depreciation report under section 94?

yes

The cost to obtain a deprecation report is one of the few common expenses that may be approved to be expended from either the operating fund or the contingency reserve fund.

Is the expenditure related to the repair, maintenance or replacement recommended in the most current depreciation report obtained under section 94 of common property, common assets or the portions of a strata lot for which the strata corporation has taken responsibility under section 72 (3)?

yes

The expenditure is permitted if it is first approved by a resolution passed by a majority vote at an annual or special general meeting.

Has the expenditure been approved by 3/4 vote at an annual or special general meeting?

yes

The expenditure is permitted if it is first approved by a resolution passed by a 3/4 vote at an annual or special general meeting.

A quality depreciation report provides recommendations for repairs, maintenance, and replacements of the common property, common assets, and those parts of the strata lot that the strata corporation is responsible to repair and maintain. Expenditures related to the repair, maintenance or replacement recommended in the most current depreciation report only requires approval by a majority vote. In other words, most repairs are approved by a majority vote.

Because the proposed expenditure is not related to repairs, maintenance, or replacements recommended in the depreciation report, a higher voting threshold must be met to approve the expenditure. In other words, a 3/4 vote is required for most administrative only expenditures and purchases of new assets which do not usually occur or usually occur less than once per year. Common examples include engaging a lawyer to draft new consolidated bylaws, insurance appraisals, etc. But keep in mind that these types of expenses may usually occur once per year or more often depending on how the strata corporation operates; in that case the expenditure needs to be approved in the operating budget by a majority vote.

The expenditure is not permitted to be made from the contingency reserve fund unless it is first approved by a 3/4 vote.

An exception may apply. Continue to find out if an exception applies.

Are there reasonable grounds to believe that the expenditure is necessary to ensure safety or prevent significant loss or damage, whether physical or otherwise?

yes

Are there reasonable grounds to believe that the expenditure is immediate necessary?

yes

The expenditure is not permitted to paid from the contingency reserve fund.

It is important to note that only an expenditure that is immediately necessary is permitted under this exception to the vote requirement. For example, if the roof is leaking and the roofer recommends its replacement, it is sensible to replace the roof, but not permitted in this situation if patching or tarping will resecure the property or temporarily prevent signficant loss or damage. However, the roof replacement may be permitted to be made without a vote of the owners if the roofer says that no amount of patching or tarping will prevent significant damage unless the roof is immediately replaced. But even then, by proceeding under this exception without a vote of the owners may limit the strata council to approving a "good" option, but not the "better" or "best" option that may be preferred.

The inconvenience of delaying a repair is not grounds to determine that an expenditure is immediately necessary. For example, if a hot water tank fails and residents may only have limited or no access to hot water, this does not qualify as immediately necessary in and of itself. However, the hot water tank replacement may be permitted to be made without a vote of the owners if there are reasonable grounds that the lack of hot water immediately threatens the safety (health) of one or more residents or if an owner or business will incur a significant loss or damage if the water is not restored (i.e. a business that relies on hot water to operate their business).

Hot water service is an interesting topic. While in the moment is may feel appropriate to replace a failed hot water tank like-with-like. However, doing so without a vote of the owners takes aways the owners’ ability to discuss and debate whether to maintain an inefficient hot water system or to upgrade to a solution that is more cost effective, more efficient, or more reliable.

Planning is important. It is best practice to review the depreciation report for expenditures that may occur in the coming years. Plan ahead for those repairs, including discussing and voting on repairs before the expenditure is actually expected to be made. Proactive maintenance is the best way to reduce costs and reduce inconvenience to owners.

The expenditure is permitted to paid from the contingency reserve fund.

It is important to note that only the expenditure that is immediately necessary is permitted. For example, if the roof is leaking and the roofer recommends its replacement, it is sensible to replace the roof, but not permitted in this situation if patching or tarping will resecure the property or temporarily prevent signficant loss or damage. However, the roof replacement may be permitted to be made without a vote of the owners if the roofer says that no amount of patching or tarping will prevent significant damage unless the roof is immediately replaced. But even then, by proceeding under this exception without a vote of the owners may limit the strata council to approving a "good" option, but not the "better" or "best" option that may be preferred.

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