Strata Contingency Reserve Funds (CRF’s) – Is yours adequately funded?

Under Information for Buyers, Presales


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Written on May 16th, 2016

 

What is a Contingency Reserve Fund?

Under the Strata Property Act, strata corporations must have contingency reserve funds (CRFs) to pay for common expenses that usually occur less often than once a year.  Some examples of CRF expenses include replacing corridor carpeting, re-surfacing the parkade, and replacing the roof etc.

These expenditures are typically identified in advance through budgeting a by way of a depreciation report, and must be approved by owners, unless the expense is an emergency repair or an insurance deductible for a common property expense.

How much money is supposed to be held within the Contingency Reserve Fund?

According to Regulation 6.1, the Contingency Reserve Fund must be equal to at least 25% of the Strata’s Operating Fund.  If the reserve fund is below that amount at the time of the AGM, an amount equal to 10% of the operating fund must be contributed annually until that minimum requirement is met.

It should be noted that most strata corporations will have significantly more than the legal minimum in the CRF in order to have funds on hand to pay for longer term repair, replacement, and maintenance costs.  The last two buildings I looked at both exceeded this requirement.  One was built in 2006 and had a CRF of almost 180% of it’s $700,000 operating budget, and the other built in 2009 had a CRF that was approximately 70% of it’s $120,000 operating budget.

How is money generated for the Contingency Reserve Fund?

Contingency Reserve Funds are funded through strata fees which are assessed by taking the total cost of the strata’s expenses and dividing that cost by the unit entitlement of each strata lot.  These strata fees and contributions to the CRF are approved in the annual budget by a majority vote of the owners.   These contributions are not refundable to owners, which means typically, the CRF will contain contributions from both current and previous strata lot owners.

How are Strata Fees initially determined?

In the beginning of a strata corporation, the developer is responsible for the budget process, and after the strata’s first AGM, the strata council takes over this responsibility.

As for the responsibility of actually covering the operating expenses, the first conveyance of a strata lot determines the timing at which financial responsibility transfers from the developer to the strata corporation.

The Strata Property Act attempts to motivate developers to accurately budget their interim budget, for if there is a shortfall between the actual expenses for the interim period and those set out in the developer’s interim budget, the developer must pay the difference.  If the shortfall exceeds 10% of the estimated operating expenses in the interim budget, then the developer is also liable to pay a penalty of double or, in some cases, triple the shortfall.

If you’re looking for a second opinion on the overall budget and the strata fees that are proposed for the unit(s) that you are considering in a new development, please get in touch with me as I would be happy to take a look at things with you and provide my opinion.

Is there such a thing as standard or typical rates for Strata Fees?

Strata fees can represent a significant portion of your monthly carrying costs for an apartment in the Greater Vancouver Area, so whether you are considering purchasing an apartment as an investment, or as your first home, be sure to take a close look at monthly strata fees.

Strata fees often vary considerably from area to area, and from development to development.  Typically, the range and type of amenities included, and the management style of the strata corporation dictate strata fees.

In general, strata fees in Greater Vancouver range from approximately $0.25 / Sq.Ft., up to around $0.50 / Sq.Ft.  The higher end of this range is typically associated with buildings that have amenities such as pools, hot tubs, saunas, large gyms, expansive common areas, and other 24-hour concierge service.

 

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