Are there any recomendations regarding amount of capital reserve funding to try to maintain in a condominium?

Answer 1

Depending on the area you live in, there may be some or very distinct laws assisting you with establishing a reserve fund.

For instance here in BC, the Strata property act requires 10 % of the annual budget to be allocated towards a contingency fund. This was amended in the last update of the law from 5 %, the reason for the increase was the number of moisture issues with buildings built between 1982 and 1998 which we refer to as the "leaky condo syndrome".

So if your territory does not have laws assisting you with this, you may want to review the laws of neighbouring provinces or states and be guided by them.

The 10% method built into the annual budget and charged as part of the monthly fees, seems to be working in BC, as we have seen a dramatic reduction of "special assessments" for upgrades and capital expenditures. But if you are in a very small development, you may need to allow for higher allocations, in order to ensure add equate funds being available when needed

Keep in mind that all of the mechanical and structural wear and tear, all comes to its end of its usable live, more or less around the same time (10 to 15 years), some of which can be prolonged with good preventive maintenance, but still needs attention.

I hope this helps, good luck.

Answer 2

It depends on the type of building and what is the association's responsibility for replacing common area property. It also depends upon if the association is committed to fully reserving replacement cost on those common components. I would also check with the condominium laws in your state to see if there any mandated reserve funding requirements.

Depending upon the answers to these questions, I would then estimate as best as possible the replacement costs of the items you want to reserve for and apply the percentage that you want to fund to that number. Then I would divide the result by the number of years until you expect the replacement to be made. Once you have this number, you can assess in a rational manner (e.g. by unit or by square foot).

Hope this helps!

Michael Casey CPA
Business Consultant
608-271-0068