Reserve Fund Studies are financial management
tools especially developed for condominium corporations. They are
intended to ensure that sufficient funds are put aside to carry
out major repairs and replacement of common elements as the need
arises.
These studies (RFS) should be prepared by experienced
professionals, such as engineers or architects. Not every engineer
or architect is experienced in this type of work and the owners
(Board of Directors) or their agent (Property Manager) are well
advised to seek out professionals that do have the experience in
this type of work. Word of mouth references are most reliable in
this regard. A very poor basis for selecting a RFS professional
is on the basis of price. Always keep in mind: You get what you
are paying for!
In order to quantify each common element, the
consultant needs the drawings of the complex. If drawings are not
available, it will cost significantly more to conduct the study
because each element will have to be measured on site, a task which
may take several days for two people to accomplish. Therefore, drawings
should be guarded carefully and they should be signed out by the
consultant and returned upon completion of the study. It is strongly
recommended that a good quality copy of the drawings be kept in
a separate storage location. Many condos do not have drawings for
two reasons. Either they were never handed over by the developer
or they were not returned by the consultant or contractor who last
used them. Drawings are an invaluable asset both, for Reserve Fund
Study work and for the preparation of repair specifications. Therefore,
it is strongly recommended that you hold on to your drawings.
A Reserve Fund Study consists essentially of
two parts: The Physical Analysis and the Financial Analysis. The
Physical Analysis includes a visual review of all common elements
of the complex. It is important that the consultant be given clear
documentation identifying the common elements. The best way to convey
this information is through the Declaration of the Condominium.
There are significant differences between condos in regard to what
constitutes a common element. Also keep in mind that the visual
review is not a detailed investigation of the complex but merely
an overview to assess the general conditions of the condo. The inspecting
consultant will have to rely on his experience in assessing the
general conditions and in observing tell tale conditions indicating
certain hidden deteriorations which may lead to major expenditures
in future years. The consultant will also need experience in estimating
the remaining service life of the common elements. To gain this
experience, the consultant typically will be involved in building
assessment work and the repairs of buildings.
The Financial Analysis consists of establishing
the costs for replacing or repairing the common elements and determining
a timeline for such replacements or repairs. The information is
presented in a spreadsheet format which should clearly show all
forecasted expenditures in each of the 30 years of the study period.
The spreadsheet analysis should take into consideration current
inflation and interest rates, as well as the reserve fund balance
at the beginning of the study period. When recommending the reserve
fund contribution level, the consultant will have to decide two
things: the minimum acceptable balance during the study period and
the balance at the end of the study period. This latter item will
be governed by the major expenditures expected shortly after the
study period.
Once the study has been completed, the draft
copy of the spreadsheet and report should be reviewed with the Board
of Directors and the Property Manager to ensure that all concerns
have been addressed. Where Special Assessments are required, the
consultant will recommend within what time frame the funds need
to be raised. While there is always a tendency for condos to try
to spread the assessment over several years, this is not generally
considered a good idea. The reason is that any known extraordinary
expenditures will have to be revealed in the Status Certificate
and this may hamper the sale or purchase of the affected condo units.
The objective of the Reserve Fund Study is to provide a financial
guideline which will ensure, to the extent possible, that there
will be no unexpected increases in the condo fees in future years.
This can be largely achieved by firstly commissioning a Reserve
Fund Study and secondly, by following the study. The new (1998)
Condominium Act provides clear guidelines regarding the requirements
following the completion of a Reserve Fund Study.
Keller Engineering Associates Inc. (KEA) is a
multi disciplinary engineering firm offering structural, building
science, mechanical (HVAC) and electrical engineering services.
One of KEA's key activities is the preparation of Reserve Fund Studies
and Asset Management Reports for condominium clients. Since its
formation 22 years ago, KEA has completed over 400 Reserve Fund
Studies.
For your Reserve Fund Study needs call Keller Engineering
Associates Inc. We have the experience and the dedicated specialist
engineers.
Keller Engineering Associates Inc.
1390 Prince of Wales Drive
Ottawa, Ontario
K2C 3N6
Canada
Tel: (613) 224-1594
Fax: (613) 224-1642
Email: info@kellerengineering.com
|
