Financial Analysis
Reserve Fund Analysis: How to Know If a Condo's Reserves Are Adequate
An underfunded reserve fund is the most common hidden cost in a condo purchase. Most buyers never read the reserve fund study. Those who do often miss the critical number: reserve runway — how many years the fund can cover planned capital replacements before it runs dry. Here is how to assess reserve health before you sign.
What Is a Reserve Fund — and Why It Matters
Every condo, strata, and co-op corporation is responsible for maintaining common property — roofs, lobbies, elevators, plumbing, parking structures. These capital assets depreciate and eventually need repair or replacement. The reserve fund (called the contingency reserve fund in BC) is the corporation's savings account for this work.
If the fund is too small when a major repair hits, unit owners pay the gap — either through a special levy or through financing costs on a reserve fund loan. An underfunded reserve fund is a direct, quantifiable financial liability for every buyer.
How to Read a Reserve Fund Study
A reserve fund study (or depreciation report in BC) is prepared by a qualified professional and contains:
Component inventory
A list of all common property assets — roof, envelope, mechanical, elevators — with current condition and estimated remaining useful life.
Replacement cost estimates
The projected cost of replacing each component in today's dollars, inflated to the projected replacement year.
Cash flow projections
A year-by-year forecast of the fund balance, showing annual contributions, planned withdrawals, and end-of-year balances over a 30-year study period.
Funding scenarios
Usually three scenarios — threshold funding (minimum to avoid going negative), baseline, and full funding. The recommended annual contribution varies by scenario.
Percent funded
The current fund balance as a percentage of the full-funding target. Below 70% is generally considered underfunded.
What Pellucis Calculates
Pellucis extracts the reserve fund study data and calculates three key metrics:
Reserve Runway
Years before projected withdrawals exceed projected fund balance under the current funding scenario.
Funding Gap
Dollar shortfall between the current balance and the full-funding target. Expressed per-unit.
Special Levy Risk
Estimated per-unit exposure if the largest projected capital replacement occurs without adequate reserves.
Warning Signs in Reserve Data
Reserve runway under 10 years
Any point in the cash flow projections where the fund balance goes negative means unit owners will face a levy or loan in that period.
Percent funded below 70%
Below 70% funded is the threshold most provincial guidance uses. Below 50% is a serious concern requiring investigation.
Annual contributions below threshold funding
If the corporation is contributing less than the threshold amount — the minimum to avoid going negative — the shortfall compounds annually.
Missing or outdated reserve study
A study more than 5 years old (or absent entirely) means capital planning is based on stale data. Pellucis flags non-compliance with provincial requirements.
Major replacements clustered in the near term
If the study shows a roof, elevator, and mechanical system all due within 5 years, assess whether the fund can absorb the cumulative cost.
Frequently Asked Questions
What is a reserve fund?
A reserve fund (called a contingency reserve fund in BC) is money the condo corporation sets aside for major capital repairs and replacements — roofs, elevators, plumbing, parking garages. Each unit owner pays into it monthly as part of their strata fee or common expense contribution. The fund is governed by provincial legislation and must be studied by a qualified professional on a fixed schedule.
What does an underfunded reserve fund mean for a buyer?
An underfunded reserve fund means the corporation does not have enough money set aside to cover projected capital repairs. When a major repair is needed — a roof replacement, envelope remediation, elevator modernization — the corporation has two options: borrow money (a reserve fund loan, charged back to all owners), or levy a special assessment against each unit. Either way, you pay. Pellucis quantifies this exposure as a dollar amount per unit.
What is a special levy (special assessment)?
A special levy is a one-time charge to unit owners to cover a capital expense that the reserve fund cannot. In BC, a special levy requires a 3/4 vote. In Ontario, it is approved by the board. Special levies can range from a few thousand dollars to $50,000+ per unit depending on the scope of the repair and the number of units. A pending or anticipated special levy must be disclosed on Form B and the Ontario status certificate.
What is reserve runway?
Reserve runway is the number of years the current reserve fund balance — combined with projected annual contributions — can fund all planned capital replacements without a special levy or loan. Pellucis calculates reserve runway from the reserve fund study's cash flow projections. A runway of less than 10 years, or any period where projected expenditures exceed projected balances, is a serious warning sign.
What percentage funded is adequate?
Industry practice (and most provincial guidance) suggests a reserve fund should be at least 70–100% funded relative to the reserve study's recommended balance. Below 70% is generally considered underfunded. However, the percentage alone is not sufficient — you need to look at the reserve runway: whether the fund can cover all projected replacements over the study period without a levy. Pellucis calculates both.
How often are reserve fund studies required?
In Ontario, condo corporations must update their reserve fund study every 3 years. In BC, depreciation reports (the BC equivalent) are required every 5 years and the opt-out provision was eliminated by Bill 44 (2022). In Alberta, reserve fund plans are required every 5 years. Pellucis flags when the reserve study is missing, outdated, or non-compliant.