Some Notes From Our Recent Q & A – What Is a “Major Repair or Replacement”?
What is a “Major Repair or Replacement”?
As noted in Section 93 of the Condominium Act (the Act), the reserve fund is solely for major repairs and replacements of the common elements and assets.
Major repairs and replacements are not defined in the Act or in the Regulations. There is one small clue in Section 27 of Regulation 48/01. That section says that the items to be included in the reserve fund study (the component inventory) are items costing more than $500 to replace. But I don’t think that’s a full answer because many annual or operating repairs and replacements cost more than $500.
To me the key concept is as follows:
Condominiums are supposed to be planning or budgeting for constant annual condo fees – increasing only by inflation. Otherwise – if there is reason to believe that the fees may increase beyond inflation – this has to be disclosed in the status certificates and of course the goal is to always try to stay on track, so that the status certificates can stay clear (if possible).
So again: The goal, when possible, is to come up with a monthly condominium fee that can stay constant… increasing only by inflation (and also without any risk of future special assessments).
To do that: I think that the budgeting strategies are as follows:
- The Operating Budget should cover any expenses that repeat annually.
- The Reserve Fund should cover any projects that don’t repeat annually.
And of course the whole idea behind the reserve fund study and plan is to come up with an annual contribution to the reserve fund that stays constant (increasing only by inflation from year to year). This allows the status certificate to stay clear (again, as long as there is no other risk of an increase).
So, in summary: I think that a reserve fund project is something that does not repeat each year.
In the operating budget, you can of course have a “grab bag” of certain expenses that don’t each repeat annually, provided the whole bag essentially repeats annually… like general maintenance. And I think maybe items costing under $500 can perhaps be included in that sort of grab bag.
But again: In general terms, I believe that a major repair or replacement is something that comes along less often than annually (and is therefore not covered by the operating budget).
I should add the following: There are some projects that involve a change or an upgrade. Strictly speaking, the reserve fund is not available for optional changes or upgrades. However: A change or upgrade that is necessary in order to keep up with evolving construction standards or is otherwise necessary in order to bring about a proper repair is, in my view, a repair or replacement… and the reserve fund can be used for that.
In some cases you may have a “mix between the two” – part repair or replacement and part optional change or upgrade. In those cases, you can still use the reserve fund for the repair or replacement portion of the cost. You just can’t use the reserve fund for any extra cost relating to the optional change or upgrade.
I should add that there are proposed amendments to the Act that will allow certain upgrades – particularly green energy projects – to be paid from the reserve fund… but those provisions are not yet in force.
One further note: If a proposed project will involve an optional change or upgrade, this may also require the involvement of owners under Section 97 of the Act. So, that’s also something else to watch for when dealing with a change or upgrade.
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