Contingency funds: nature of the work

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.

Major repairs

Article 1152 of the Civil Code of Quebec, relating to usufruct, provides that " major repairs are those which affect a substantial part of the property and require extraordinary outlays, such as repairs relating to beams and support walls, to the replacement of roofs, to retaining walls or to heating, electrical, plumbing or electronic systems, and, with respect to movables, to motive parts or the casing of the property".

The term "exceptional" must therefore be understood to mean "not occurring regularly". This interpretation is substantially in line with the distinction made in British Columbia legislation between repairs under the operating fund and those to be charged to the contingency reserve fund . The former usually occur once or more a year, while the latter occur less often, if not rarely.

It is also understood that article 1152 of the Civil Code of Quebec necessarily excludes minor repairs, improvement work, and the current administrative costs of the syndicate. But its ambiguity does not make it possible to settle everything. For example, are repairs to a membrane of an underground garage slab or painting balconies and guardrails among the "major repairs"? However, the non-performance of those components would have a direct impact on the useful life of those components of a building and, by the same token, on their accelerated replacement.

Paradoxically, the Ontario law, which would have influenced the drafting of article 1071 of the Civil Code of Quebec, was much more explicit and listed specific examples of major components: "roofs, exteriors of buildings, roads, sidewalks, sewers, heating, electrical and plumbing installations, elevators, laundry, recreational facilities and parking."

Replacement of common portions

The replacement of the common portions is work whose cost is not included in the operating budget of the co-ownership (e.g. the replacement of the elevator). This is work that ensures the conservation of common portions (excluding maintenance), such as those relating to common elements of the building (e.g., the replacement of the elevator). Thus, the replacement of windows that have become obsolete, as a result of a progressive deterioration or affected by a construction defect, constitutes a an expense to be charged to the contingency fund. On the other hand, the repair of a broken window, caused by the co-owner holding the exclusive use or a third party, falls within the concept of regular maintenance.

Identification of common portions

Before charging the contingency fund an expense related to work, the board of directors must first identify precisely the common portions of the building. The determination of the common portions requires in the first place an examination of the articles of the declaration of co-ownership stating these portions of the immovable, as well as the cadastral plan which makes it possible to know the limits and measures of each lot.

Such an exercise is sometimes complex. In some cases, there may be a contradiction between the description of the common and private portions appearing in the constitutive act of co-ownership, and their designation recorded in the description of the fractions. Another difficulty has arisen since January 1st 1994, when the cadastral plan no longer expresses the physical nature of the bollards. It becomes impossible to identify, by the analysis of the latter, whether the plasterboard or the floor covering of a unit is an integral part of the private or common portion. In order to properly qualify these parts, the land surveyor should be required to specify, in a separate document or in the certificate of location, the physical nature of the bollards where the measurement was made.

Presumption relating to common portions

In certain circumstances, when the declaration of co-ownership lacks clarity, it is the law that presumes certain parts of the co-ownership to be "common". This applies to the ground, yards, balconiesparks and gardens, access roads, stairways and elevatorspassageways and hallscommon service areasparking and storage areas, basements, foundations and main walls of buildings, and common equipment and apparatus, such as the central heating and air-conditioning systems and the piping and wiring. Any of these items can be common portions even though they run through private portions. However, this presumption is not absolute. It can be refuted by the cadastral plan that provides for the immatriculation of the private portions and common portions of the co-ownership, or by the declaration of co-ownership when it describes in detail their composition and their respective boundaries. As the notary Serge Allard points out: "Where the presumption seems to us to be of some use is when article 1044 C.c.Q. mentions common equipment and apparatus. Indeed, electrical and plumbing or ventilation installations generally serve, for a large part of their mechanics, the co-owners considered collectively. It is then appropriate to qualify this equipment as a common portion, including when parts pass through the private portions. Given the complexity of these elements, the co-owners will be well advised to consider, in doubt, during a repair, that these objects are part of the common portions and that the resulting responsibility is collective".

WHAT YOU SHOULD KNOW !​ Work to bring the common portions up to standard is not considered to be improvements. The resulting expenses are covered by the contingency fund if they are major repairs or replacement of the common portions. As for the method of financing this work, it is up to the board of directors to determine it.

http://www.condolegal.com/images/Boutons_encadres/A_retenir.pngWHAT TO KEEP IN MIND :​ While the Civil Code of Quebec provides valuable guidance, some declarations of co-ownership remain difficult to interpret as they constitute common and private portions. In this case, the board of directors must be assisted by an experienced lawyer or notary specialized in co-ownership. This first operation of identification of the common elements, once completed, should no longer require any revision for the future, since there are no subsequent modifications made to the building.

WARNING ! It should be noted that a declaration of co-ownership may contain errors with regard to the determination of common and private portions. Thus, the fenestration of the immovable could be incorrectly described in the constituting deed of co-ownership as being a private portion, whereas the combined analysis of the descriptive state of the fractions and the cadastral plan made it possible to conclude that the fenestration was included in the common portion.

 

Back to the mega-sheet: Contingency Fund