Condominiums, strata corporations, and coproprietors across Canada use reserve fund studies to guide their plans for future funding. In Ontario, the Condominium Act states the reserve fund needs to be adequate and updated every three years. The minimum prescribed duration is 30-years; however, at McIntosh Perry we’ve realized that a 30-year time frame misses several long-lived expensive items. So, in addition to the minimum, we also offer our clients 45-year and 60-year positive cash flow plan options.
These offerings are motivated by client demand as well as the movement to increase the 30-year plan in the Condominium Act by 15 years or more. One of our Property Manager colleagues brought up a good point that made us re-think our approach. They noted that when large expenditure items, such as transformers, sewers, foundation walls, or demising walls are outside of the 30-year or 45-year periods by even one or two years, when the next reserve fund study update occurs, these expensive items are now considered included within the next 30-year or 45-year time frames. Sometimes this drastically affects the condominium maintenance fees. In the example below the $257,342 shortfall translates to an average $24/unit/month requirement because it would not even be noticed until the next update when it is then 29 years away.
To help our condo board clients see these changes at the time of the current reserve fund study update and avoid getting hit with drastic increases in the next update, we offer a 60-year cash flow plan. Most common element components do not have a longer life than 55 years, so the 60-year timeframe will capture at least one replacement cycle of all components within the reserve fund study – especially the long-lived expensive ones.
Working the sample above, we can spread the average monthly increases out over time, achieve the same minimum closing balance in 45-years, and have a 60-year positive cash flow plan. The 30-year contributions were $1,345,667 (about $121/unit/month), whereas the same first 30-years in the 60-year plan are $1,773,787 (about $159/unit/month), or $38/unit/month more on average. Just $14/unit/month more than the $24/unit/month shortfall that would have become apparent at the next update anyway. Very reasonable price to pay for a legacy plan achieving twice the least legally acceptable option.