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.
Objectives
With the coming into force of the Civil Code of Quebec in 1994, the Quebec 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 and to introduce forced savings to pre-finance some of the work to be carried out in the common portions of the co-ownership. Long-term planning of the major work to be carried out within a co-ownership, allows large expenses to be paid over time. By collecting funds each month, the co-ownership will build up a fund that will finance (in whole or in part) the necessary work.
The “contingency fund" concept is also based on the principle of equity between the successive co-owners of the immovable. It will not be only the co-owners on title during the work that will bear alone the cost, while the previous co-owners have benefited from the property without contributing.
An obligation
The contingency fund is mandatory in all divided co-ownerships, the law does not provide for any exception. The obligation for a syndicate to set up a contingency fund constitutes an obligation of public order of direction, since it concerns the collective protection of co-owners, against a failing administration. It should also be noted that the sums accumulated there belong to the syndicate. These sums do not give rise to any refund by the syndicate to the co-owner, on the occasion of the sale of his private portion.
The duty of the Board of Directors
The Board of Directors exercises executive powers. Its prerogatives are fixed by Law and the declaration of co-ownership (constituting act of the co-ownership). Being in charge of the preservation of the immovable, it must prepare the forecast budget of the co-ownership. In doing so, it will determine the amount of the common expenses (condo fees) to be paid by the co-owners, including without fail the amounts to be provisioned in the contingency fund. To that end, it must, based on the recommendations made in the contingency fund study, fix the annual contribution of the co-owners to the fund, after consultation with the meeting of co-owners. In addition, article 1071 of the Civil Code of Quebec provides that the use of the contingency fund is determined by the board of directors. The sums accumulated in this fund must be used to pay for major repairs and replacements of the common portions of the immovable. Under no circumstances must they be used to finance the maintenance and day-to-day administration of the co-ownership.
Responsibility of the members of the Board of Directors
Failure to establish a contingency fund, or even to establish a clearly insufficient fund or to use the accumulated sums for other purposes, would constitute a fault on the part of the directors. They could thus incur their civil liability as regards the syndicate and the co-owners. Recall that a director acts as mandatary of the syndicate and must comply with the obligations imposed on them by law and the constituting act of co-ownership and act within the limits of the powers conferred on them.
WHAT YOU SHOULD KNOW! A judgment condemning the syndicate to pay a sum of money may not be executed against the contingency fund, except for a debt arising from the repair of the immovable or the replacement of common portions.
WHAT TO KEEP IN MIND: To avoid confusion between the amounts paid into the administration fund (general) (which is intended for current operations) and the self-insurance fund and those paid into the contingency fund, a separate bank account should be opened for each fund.
WARNING! The contingency fund of a co-ownership is very often insufficient, because of minimal co-owners contributions and / or its inappropriate use by directors, whether through ignorance or negligence.
