Differentiating Between a Reserve Fund Study and a Reserve Fund Plan
What is a Reserve Fund Study?
A reserve fund study is a professional assessment conducted every five years to evaluate a condominium’s long-term repair and replacement needs.
It includes:
A list of common property elements (e.g., roofing, elevators, parking lots).
The expected lifespan and replacement costs of each element.
A recommendation on the annual contributions required to maintain the reserve fund.
What is a Reserve Fund Plan?
A reserve fund plan is the strategy the condominium board adopts to meet the financial needs outlined in the reserve fund study.
It includes:
A funding schedule for required contributions.
A timeline for upcoming major repairs.
An outline of the board’s approach to maintaining reserve fund health.
Comparison Table: Reserve Fund Study vs. Reserve Fund Plan
Aspect | Reserve Fund Study |
Purpose | Assesses financial needs |
Conducted By | Qualified professional (engineer, specialist) |
Frequency | Every five years (required by law) |
Includes | Common property inventory, expected repairs, cost estimates |
Aspect | Reserve Fund Plan |
Purpose | Plans how to meet financial needs |
Conducted By | Condominium board |
Frequency | Updated annually as needed |
Includes | Funding strategies, board decisions, payment schedules |
Understanding the Reserve Fund Report
What is a Reserve Fund Report?
A reserve fund report is a summary of the condominium corporation’s financial position regarding its reserve fund. It ensures transparency and compliance with the CPA.
It must include:
The total balance of the reserve fund.
Annual contributions made by unit owners.
Withdrawals for major repairs or replacements.
Any projected shortfalls and required adjustments.
Why is the Reserve Fund Report Important?
Ensures funding is sufficient for necessary repairs.
Protects unit owners from unexpected special assessments.
Provides transparency and helps maintain property value.
Supports compliance with the Condominium Property Act.
Analyzing Reserve Fund Reports for Compliance
CPA Compliance Requirements for Reserve Fund Reports
To comply with the Condominium Property Act, a reserve fund report must:
Reflect accurate and up-to-date financial data.
Show adequate contributions in line with the reserve fund study.
Identify whether planned repairs exceed available funding.
Confirm that funds are only being used for major repairs.
How to Review a Reserve Fund Report
Step 1: Check if the fund balance aligns with study recommendations.
Step 2: Verify that contributions match what the reserve fund study requires.
Step 3: Ensure that withdrawals are justified and used correctly.
Step 4: Look for signs of underfunding or non-compliance.
Case Study: Reserve Fund Analysis
Scenario: A condominium has a reserve fund balance of $400,000, but the latest reserve fund study recommends a balance of $700,000 to cover upcoming repairs.
Analysis Questions:
Is the condominium corporation meeting its statutory obligations?
What corrective actions should the board take to address the shortfall?
