Reserve Fund & Operating Account Overview
A condominium corporation must maintain two separate financial accounts:
Operating Account – Covers daily operational expenses.
Reserve Fund – Funds major repairs and replacements.
Reserve Fund Requirements
Purpose of a Reserve Fund
A reserve fund is used exclusively for the repair or replacement of common property, managed property, and corporation assets.
Reserve Fund Contributions
Every condominium corporation must maintain a reserve fund to meet long-term financial obligations.
Contributions come from unit owners' condominium fees and must be determined based on a reserve fund study.
Reserve Fund Study
Must be conducted at least once every five years.
Prepared by a qualified individual such as an engineer or accountant.
Determines the amount needed for future major repairs and replacements.
Reserve Fund Spending Limitations
Funds cannot be used for daily operational costs.
Cannot be transferred to the operating account to cover budget shortfalls.
Reserve Fund Plan
After a reserve fund study is completed, the condominium board must prepare a reserve fund plan outlining:
How much money will be allocated annually.
The timeline for planned expenditures.
How the reserve fund will be maintained.
According to the Condominium Property Act, a corporation must establish and maintain a reserve fund for the repair and replacement of depreciating property.
Operating Account Requirements
Purpose of the Operating Account
The operating account is used for:
Regular maintenance of the property (e.g., cleaning, landscaping, snow removal).
Utility payments (e.g., water, electricity, gas).
Insurance and administrative costs.
Maintaining an Operating Budget
The operating budget is reviewed annually at the Annual General Meeting (AGM).
Revenue comes from monthly condominium contributions from unit owners.
The corporation must maintain enough funds to cover operational costs.
Operating Account vs. Reserve Fund – Key Differences
Feature | Operating Account |
Purpose | Covers daily expenses |
Funded By | Monthly condominium contributions |
Use of Funds | Ongoing maintenance & services |
Approval Required | Board approval |
Legislative Requirement | Mandatory |
Feature | Reserve Fund |
Purpose | Covers major repairs & replacements |
Funded By | Reserve fund contributions |
Use of Funds | Long-term capital projects |
Approval Required | Reserve fund study & plan required |
Legislative Requirement | Mandatory & regulated |
Compliance with CPA Regulations
To ensure compliance, condominium managers should:
✔ Confirm that reserve funds are not being used for operational expenses.
✔ Ensure that a reserve fund study is conducted at least once every five years.
✔ Verify that reserve fund contributions are set at an appropriate level.
✔ Ensure operating accounts maintain a sufficient balance to avoid shortfalls.
Common Compliance Issues
❌ Using reserve funds for daily expenses.
❌ Failing to complete a reserve fund study on time.
❌ Not collecting adequate reserve fund contributions.
Practical Application – Assessing Financial Compliance
Scenario 1 – Reserve Fund Use
A condominium corporation needs emergency plumbing repairs but lacks sufficient funds in the operating account. Can they use the reserve fund?
No – The reserve fund cannot be used for unexpected operational expenses. The board may need to adjust the operating budget or introduce a special levy.
Scenario 2 – Reserve Fund Study Delays
A condominium corporation has not conducted a reserve fund study in seven years. Is this compliant?
No – The corporation must complete a reserve fund study at least once every five years. The condominium manager should arrange for an assessment immediately.
