Condo Reserve Fund: How Much is Enough?

Condo owners and board members often ask, “Do we have enough in our condo reserve fund?” It’s a crucial question, as an underfunded reserve can lead to special assessments, potential financial strain on owners, legal risks and even lower property values. However, there’s no single answer to how much a condo should have in its reserve fund.

Instead of looking for a fixed number, condo boards must ensure they are following legal requirements, conducting Reserve Fund Studies (RFS) regularly, and contributing enough to cover future major repairs and replacements.

This guide explains how condo corporations in Ontario can determine whether their reserve fund is sufficient and how to manage it properly to avoid unnecessary financial pitfalls.
 

 

What is a Condo Reserve Fund?

A condo reserve fund is like a condo’s emergency savings account, but instead of covering unexpected expenses, it’s set aside specifically for major repairs and replacements. 

In Ontario, every condominium corporation is legally required to have and maintain a reserve fund, ensuring the building’s essential components—like the roof, elevators, and parking structures—are properly maintained. This is to ensure that major renovations and repairs can be paid for without placing sudden financial strain on condo owners. 

How It Differs from the Operating Fund

Think of it this way: the operating fund covers the everyday costs of running a condo (chequing account), while the reserve fund is there for the big-ticket repairs that come up over time (savings account). 

Here’s the breakdown:

• Operating fund: Used for day-to-day expenses, including utilities, landscaping, cleaning, and minor repairs.
• Reserve fund: Dedicated to major, long-term expenses, such as roof replacement, balcony repairs, parking garage restoration, and HVAC system overhauls.

By keeping these funds separate, condo corporations can ensure that regular operations run smoothly while also preparing for inevitable, costly maintenance projects and repairs.

Without a well-maintained reserve fund, condo owners may be hit with special assessments—one-time fees charged to cover major repairs when the reserve fund falls short. These unexpected costs can be financially stressful, which is why following condo reserve fund contribution guidelines and staying proactive is so important.

What Can Reserve Fund Monies Be Used For?

A condo corporation’s reserve fund is money that’s set aside for specific repairs and projects and should never be viewed as a catch-all savings account. It can only be used for certain types of expenses.
 

Ontario’s Legal Requirements for Reserve Funds

Ontario’s Condominium Act, sets clear rules to ensure that condo corporations maintain healthy condo reserve funds. These laws are designed to protect both the building’s long-term stability and the financial well-being of condo owners.

Consequences of Not Meeting Reserve Fund Requirements

By law, reserve funds must be maintained at levels sufficient to cover projected major repairs and replacements. If a condo corporation fails to maintain a sufficient reserve fund, it can create serious financial and legal challenges:

• Legal liability: Condo board members in Ontario can be held accountable for financial mismanagement if they do not ensure that the reserve fund meets legal requirements. This case from 2015 saw condo board members on the hook for $96,000 dollars due to financial mismanagement.
• Financial risk for owners: If the reserve fund is underfunded, condo corporations may need to impose special assessments, requiring owners to pay significant, unexpected fees to cover necessary repairs. 
• Lower property values: A poorly funded reserve can make a condo less attractive to potential buyers. If an RFS shows that the reserve is inadequate, lenders may be hesitant to approve mortgages, making it harder to sell units.

What is the Role of a Reserve Fund Study?

An RFS is essentially a financial roadmap for a condo’s future maintenance and repairs. It provides condo boards with a long-term financial strategy to ensure they have enough funds set aside to cover major expenses without sudden fee hikes or special assessments.

Types of Reserve Fund Studies

• Class 1: Comprehensive study – This is the first study a condo must conduct, within its first year of registration. It involves a full site inspection, a review of all common elements, and an initial 30-year financial forecast. 
• Class 2: Update with site inspection – This study reassesses the physical condition of the building and updates the financial forecasts based on current repair costs and inflation trends.
• Class 3: Update without site inspection – This is a financial-only update that ensures reserve fund contributions remain on track without requiring a full physical inspection.

A RFS must be carried out every 3 years and the type of study will rotate between Class 1, Class 2 and Class 3 every 3 years.  So essentially, every 9 years, a condominium will carry out a Class 1 RFS.

How the RFS Determines Reserve Fund Needs

A well-executed RFS considers multiple factors, including:

• The current condition of major components (e.g., roof, elevators, HVAC systems).
• Life expectancy of each major component.
• Projected costs for replacements and repairs over the next 30 years.
• Inflation and market trends affecting material and labor costs.
• Existing reserve fund balance and projected contributions needed to avoid shortfalls.

Industry Benchmarks: How Much Should a Condo Association Have in Reserves?

While the Ontario Condominium Act does not mandate a fixed reserve fund amount, industry best practices and data from reserve fund studies help condo boards determine if their fund is on track.

Factors That Influence a Condominium’s Reserve Requirements

A condo’s reserve fund requirements can vary significantly depending on:

• Building age – Older buildings generally require higher reserve fund contributions to account for aging infrastructure.
• Size and amenities – High-rises with elevators, pools, playgrounds, and parking garages typically need larger reserves than smaller condos.
• Construction quality – Poorly built condos may require higher-than-average contributions to address defects or premature failures.
• Reserve fund study projections – The most accurate benchmark for any specific condo is its latest RFS, which provides a 30-year forecast of anticipated expenses.

Example: Two Different Condo Reserve Needs

Not all condos require the same level of reserve fund contributions. The type of building, the amenities it offers, and its overall size all play a major role in determining how much should be saved each year. Let’s compare two different condominium corporations:

Small Low-Rise Condo (20 Units, No Elevators, No Underground Parking) 

Consider a small condo building with just 20 units and minimal shared amenities. Since there are no elevators, underground parking garages, or extensive amenity spaces, maintenance costs are lower. This means:

• The reserve fund may only need to cover essential repairs, like roof replacements, exterior maintenance, and common-area upkeep.
• These lower costs allow the condo to allocate a more modest 15%-20% of its annual budget to the reserve fund.

Large High-Rise Condo (200 Units, Underground Parking, Elevators, Pool, Gym) 

Now, picture a large high-rise condo in downtown Toronto, featuring multiple elevators, an underground parking garage, a swimming pool, and a gym. More amenities mean more upkeep, and major building systems like HVAC units and parking structures come with hefty repair and replacement costs. This means:

• Condo reserves must be significantly larger to account for expensive future projects, such as elevator replacements and pool refurbishments.
• These higher costs typically require allocating 30%-40% of the annual budget to the reserve fund.

Why There’s No One-Size-Fits-All Number

The reason there isn’t a general condo reserves rule of thumb is each condo’s financial needs are unique. A healthy reserve fund isn’t defined by a fixed dollar amount—it’s determined by the building’s specific needs, as outlined in the Reserve Fund Study. 

The best way to ensure the fund remains sufficient is by updating the RFS every three years and adjusting contributions accordingly.

What Happens If a Reserve Fund is Underfunded?

A well-managed reserve fund ensures a condo can cover major repairs without financially burdening owners. But what happens when a reserve fund falls short? The consequences can be stressful and expensive for everyone involved.

Consequences of an Underfunded Reserve Fund

Special assessments – When reserves are too low, condo boards may have no choice but to charge owners unexpected lump-sum fees to cover repairs. This can lead to financial strain, especially for those on fixed incomes.

Deferred maintenance – Without enough money in reserves, crucial repairs (like roofing, elevator updates, or plumbing replacements) may be delayed. The longer maintenance is postponed, the more expensive and urgent it becomes.

Property depreciation – Buyers and real estate agents pay attention to a condo’s financial health. If a reserve fund is underfunded, it raises red flags, making the condo less attractive and potentially lowering property values.

Legal risks – Condo board members have a legal duty to manage finances responsibly. If a board knowingly underfunds reserves, they could be held liable for mismanagement, leading to potential legal action from owners.

Real Case Example: What Happens When Reserves Run Dry

A North York condo made headlines when it imposed a $70,000 per unit special assessment after failing to save enough for critical parking garage repairs. Many owners couldn’t afford the sudden payment, and some were forced to sell their units at a loss. This case highlights the risks of neglecting long-term reserve planning.

How to Fix an Underfunded Reserve Fund

If a condo’s reserve fund is running low, it’s crucial to act fast before the situation worsens. Here’s how condo boards can correct the issue:

✅ Increase contributions gradually – Instead of imposing a sudden spike in condo fees, implement small, steady increases to rebuild the reserve over time.

✅ Reallocate budget priorities – Review operating expenses and shift funds toward essential repairs and long-term savings.

✅ Consider external financing – In some cases, condo boards may explore loans to cover urgent repairs. However, this isn’t the norm, as it adds debt and interest costs.

A proactive approach to reserve fund management prevents financial crises and helps maintain property values. The key is consistent, strategic planning to ensure the reserve fund stays healthy for years to come.

Keep Your Reserve Fund in Check with ICC Property Management

A well-funded reserve is a key indicator of a financially stable condominium. Navigating reserve fund management can be complex, but you don’t have to do it alone. 

The property management experts at ICC Property Management specialize in helping condo corporations plan, budget, and maintain financial stability.

Contact ICC Property Management today. Request a free service proposal, and take the right step to ensure your condo’s reserve fund is on the right track and prepared for the future.