Understanding the Contingency Reserve Fund in strata corporations

This article is provided for general informational purposes only and does not constitute legal, financial, or real estate advice. Laws change frequently and vary by province. Readers should consult with a qualified professional for advice specific to their individual circumstances.

As a strata council member, one of your top responsibilities is to maintain and improve your strata corporation’s physical property. But it can be tricky to budget for new amenities like EV charging stations or bike rooms, or shared, common-area assets that will need to be replaced or upgraded years down the line such as roofing or the building envelope. The good news is, by partnering with an experienced strata management company like FirstService Residential that knows how to put effective reserve funding strategies in place, your council can properly plan for these eventualities and avoid, as much as possible, having to impose special levies.
 

What is a Contingency Reserve Fund?

A Contingency Reserve Fund (CRF) is a community savings account that covers shared expenses like major repairs, replacement, or unexpected costs. It’s different from the operating fund, which handles regular expenses like utilities, landscaping, and janitorial work. The CRF is there to help the community handle larger projects, such as roof replacement, elevator upgrades, or plumbing repairs, without needing a sudden special levy. Strata corporations are legally required to maintain this fund under the Strata Property Act.
 

Annual contribution requirements for Contingency Reserve Funds

Strata corporations in BC are required to contribute to the CRF every year. The minimum contribution is 10% of the total annual budget for the operating fund, but many communities contribute more based on their projected needs. The contribution amount is set in the annual budget and approved by a majority vote of the owners at the annual general meeting. Over time, regular contributions can help build a healthy CRF balance, reducing the likelihood of needing special levies or loans for major projects.
 

What is a depreciation report?

A depreciation report outlines the expected repair, replacement, and renewal needs of a strata corporation’s common property and assets over a 30-year period. The report helps strata councils and owners understand what repairs are coming, when they’re likely to be needed, and how much they may cost.

A depreciation report typically includes:

• A physical inventory of the common property (like the roof, windows, elevators, and mechanical systems)
   
• A financial analysis projecting how much funding will be required over time
   
• Funding models that show how different contribution levels to the CRF may impact future costs or the need for special levies

By providing a clear picture of the building’s condition and future costs, the depreciation report is one of the most important tools a strata council can use to avoid budget surprises and keep the property in good shape over the long term.
 

How often should a depreciation report be updated?

For newer communities, the suggested cadence is every three years. After a decade of existence, communities are required to update their depreciation report every three years unless waived by 3/4 vote of the owners at a general meeting. Detailed reviews of the depreciation report should occur annually. Your province may dictate the schedule you must follow for depreciation report updates. A good strata management company will be able to provide this information to you.

It is also important to treat your depreciation report as a living, breathing document that should be regularly reviewed and updated. But remember, it’s a guide. You don’t have to hold fast to the recommended timeframes.

"For example, your depreciation report may indicate that a roof should be replaced in 30 years. If you are 28 years in, it still looks great and you’ve done all the preventive maintenance, you can decide to get another five years out of it and adjust that component accordingly."

Peter Chan, senior regional director at FirstService Residential British Columbia

Benefits of Contingency Reserve Funds for strata corporations

The key to protecting the fiscal health of your community is committing to the consistent funding of your CRF over time. By doing so, your strata corporation will realize three distinct benefits:

1. Peace of mind: A well-funded CRF gives strata corporation members greater confidence and comfort in knowing money will be there when it is needed.
    
2. Market value preservation: When reserves exist to support shared assets in a community, the market value of properties within that community are better maintained.
    
3. Equitable cost participation: One of the main advantages of establishing and maintaining a CRF is that all residents who are using and enjoying community assets are contributing to their costs. Without reserves, a special levy may be needed whereby only those residents who are living in your community at the time an asset needs to be replaced would be impacted. By funding reserves over time, generations of owners share in the costs of assets.

Please reach out to FirstService Residential if you need help identifying an engineering company/reserve specialist in your area. Our North American footprint is such that we can make these recommendations for communities of all sizes and markets.
 

Determining maintenance vs. reserve components

Properly categorizing your community’s common area components is one of the challenges that comes with managing reserves. Some items will require regular maintenance such as pressure washing sidewalks and window cleaning, others will need to be replaced like roofs and mechanical equipment, and still others will require both such as pools and carpeting.

To preserve your community components until they are due to be replaced, you must budget for maintenance costs every year. If you don’t, you may end up having to replace them before depreciation report’s replacement due date and impose a special levy or take out a loan.

At the same time, you must make a reserve contribution each year to be properly prepared for covering replacement costs when they are scheduled to occur.

Deciding whether items are maintenance vs. replacement (or both) will ultimately determine if they will be listed in your annual operating budget or as part of your reserve inventory. Usually, less expensive items are included in the operating budget, and costlier items are assigned as reserve components so their replacement costs can be financed over a longer time period. If you need help determining whether an item should be included in your operating budget or reserve inventory, consult with your auditor or strata management company.
 

How a strata management company can help

Managing the Contingency Reserve Fund effectively takes planning, experience, and a clear understanding of legal requirements. Professional strata management companies like FirstService Residential help strata councils in British Columbia stay ahead by guiding financial decisions, coordinating expert vendors, and supporting CRF planning aligned with your community’s long-term goals. Contact a member of our team today to learn more.