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Building a Strong Future: Effective Reserve Fund Management

As money is continuously stored in the 🌐reserve fund every month, it eventually grows to a point where investing it becomes prudent - instead of leaving it to collect dust and lose its value due to 🌐inflation.



All condominium buildings in Ontario are represented by a Condominium Corporation (Condo Corp) which is responsible for making decisions about the property on behalf of its owners. The condo owners are all part owners of the condo corporation but the Condo Corp is specifically governed by an owner-elected board of directors. As a condo board member, understanding the Condominium Act is fundamental to success, as you are required by law to comply with it.


The Condominium Act

The Condominium Act, 1988, of Ontario (the Act) regulates all Condo Corps in Ontario with requirements to be followed. These requirements are intended to keep owners safe. Some examples include:

  • eligible securities that are allowed to be purchased and held in reserve funds

  • an Investment Plan being made before any eligible securities can be purchased

  • mandatory reserve fund studies to be conducted every three years at minimum

External Partners

Condominium Boards are supported by various external partners to help them adhere to the Act and make prudent decisions which have lasting consequences. The following is a list of some of the core partners that usually are in place to support a Condo Corp:

  1. Property management team that may include accounting services

  2. Engineering firm specializing in delivering reserve fund studies

  3. Independent corporation financial auditor selected by owners

  4. Financial advisor typically affiliated with a top tier Canadian bank

  5. Legal firm experienced with servicing condominium corporations

There are many important checks and balances in place between boards and their partners that keep Condo Corps safe by avoiding any kind of misstep.


Investment Plan

Directors must develop an investment plan before investing any of the money in the reserve fund. The plan must be based on the anticipated cash requirements of the reserve fund based on the most recent reserve fund study conducted. Without an Investment Plan, stored money loses its value and the Condo Corp will struggle to pay what is required to maintain itself.


Understanding what constitutes an eligible security is key to a plan. A security must be CDIC Insured for it to be eligible, which leaves boards with two different products:

  • GIC

  • Market Linked GIC

Understanding the differences between these two types of GIC products is important to building an Investment Plan that will be best suited for your building. We recommend speaking to your financial advisor about them to learn more.


Summary

At Vertical City Institute we hold value in the cliche that you should use the right tool for the job; when building an Investment Plan, few tools are more useful than an investment calculator. As it is our mission to build better tools for the Condominium Community, we have built a tool precisely for this purpose, giving Condominium Boards the ability to see how different investment approaches would affect their fund across time. For more information on this tool, please read about it here: 🌐Vertical City Toolkit - Reserve Fund Forecasting.


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