Definition : Contingency fund - Replacement of common portions

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.

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.   

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.

Prevention tool The desire to encourage owners to opt for a forward-looking management of their assets and to anticipate the completion of major work is not new. Before the Civil Code of Quebec came into force in 1994, it was common for a co-ownership to have a "reserve fund", although the Civil Code of Lower Canada was silent on this issue. The majority of declarations of co-ownership contained provisions on the reserve fund. It was frequently mentioned that the co-ownership budget should include a reserve fund item for the accumulation of reserves for major expenses that are not imminent but foreseeable in the more distant future. However, the Fund was mostly insufficient, owing to the low contributions made to it.