- Contingency fund : Major repairs
Definition : Contingency fund - Major repairs
Work affecting an important portion of the immovable and requiring an exceptional expense, such as those related to beams and load bearing walls, the replacement of the roof, to supporting walls, the heating, electrical, plumbing or electronic systems. The cost of such work may be paid from the amounts deposited in the contingency fund.
Le fonds de prévoyance est le "bas de laine" d'une copropriété. Il sera indispensable lorsque viendra le temps d'engager des travaux majeurs dans l'immeuble, ou qu'il faudra remplacer des parties communes arrivées à échéance.
With the coming into force of the Civil Code of Québec in 1994, the Québec legislature introduced the obligation for any syndicate of co-owners to set up a « contingency fund » in order to anticipate and finance future expenses to repair and replace the common portions, whether the building or the equipment located therein. This fund is strictly reserved for major repairs and replacement of common portions. It should not be used for maintenance. Bill 16 amended the Civil Code of Québec to subject the syndicate of co-owners to certain additional obligations, including obtaining a contingency fund study establishing the sums necessary for this fund to be sufficient. A look at the different aspects of this collective savings.
Co-ownership work is of the utmost importance. Yet, they are more often than not overlooked by the syndicates of co-owners. Work that needs to be done in common portions can be minor or major in scope. Yet one needs money to pay for them. Good financial planning is therefore advisable in the medium and long term, so that the community of co-owners can adequately protect its real estate investment.
Replacing windows, the roof or rehabilitating the underground parking slabs, to name just a few examples, is usually very expensive. Three options are available to the syndicate to pay for this work:
As pretty as it is, a new co-ownership will age and sooner or later require major repairs. However, in Quebec, about half of the syndicates of co-owners do not have any management tools to adequately provision the contingency fund. This problem, which sometimes has disastrous financial consequences for some co-owners, should soon be resolved by the obligation to obtain a contingency fund study to which the syndicates of co-owners will be subject by the upcoming amendments to the Civil Code of Québec following the adoption of Bill 16 in December 2019. This contingency fund study will prevent it from getting into trouble because of administrators who have not properly planned the amounts of money to be allocated to it. A look at the terms and conditions relating to the contingency fund study and the transitional measures surrounding these new legislative provisions.
The contingency fund is set up on the basis of forward planning limited to certain works, namely those aimed at the conservation of the common portions. This collective savings thus makes it possible to finance the execution of works allowing the rehabilitation of the common portions as well as the common portions for restricted use. The contingency fund must be used to pay the cost of very specific work, namely those relating to major repairs or the replacement of the common portions of the building. The board of directors must therefore be able to clearly identify what constitutes the common portions and what the notion of major repairs and replacement of the common portions means.
With the coming into force of the Civil Code of Québec in 1994, the Québec legislature introduced the obligation for any syndicate of co-owners to establish a contingency fund " estimated cost of major repairs and the cost of replacement of common portions". This obligation was intended to fill a gap in the previous law. Prior to the enactment of the Civil Code, it was a frequent occurrence for co-ownerships to have a "reserve fund", although the Civil Code of Lower Canada was mute on this issue. Most of the time, this fund was inadequate, due to the low level of contributions paid into it. Moreover, declarations of co-ownership often included a contribution limit (for example$ 50,000), beyond which it was no longer required to contribute the co-owners.