What are condo reserve funds? Everything you need to know

Planning ahead for big-ticket repairs and replacements is one of the most important responsibilities of an Ontario condo corporation. Whether you’re facing a roof replacement next year or a major mechanical upgrade decades down the line, having adequate funding in place spares your community from sudden financial burdens — and that’s precisely what condo reserve funds are for.

But how do these funds work, exactly? Are they legally required? And what happens if you don’t set enough money aside? Below, we’ll break down everything you need to know about condo reserve funds, from what they cover to how they’re funded, why they matter for property values, and how an experienced property management company like FirstService Residential can help.
 

What are condo reserve funds used for?

Condo reserve funds act as a special savings account for large-scale projects — this can include projects like replacing a roof, repairing an HVAC system, resurfacing a parking garage, or upgrading mechanical equipment. These aren’t quick fixes like a coat of paint in the hallway. Instead, condo reserve funds cover significant capital expenditures aimed at preserving or improving shared elements of the building or community.
 

Are condo reserve funds legally required?

According to Ontario’s Condominium Act, 1998, all condominium corporations are required to maintain one or more reserve funds that are used solely for “the purpose of major repair of a unit, common element or assets, if any, of the corporation, if the corporation has the obligation to repair in that regard under the act."
 

How are condo reserve funds funded?

Typically, a portion of each unit owner’s monthly condo fees (also called assessments) goes into the reserve fund. How much depends on factors like the age of the building, total number of units, the breadth of amenities, and regional labour/material costs. For example, a newer building might need less immediate funding than a decades-old structure with mechanical systems nearing the end of their lifespans.

Some people quote rules of thumb — like “15% to 40% of your assessments should go to reserves.” But there’s no one-size-fits-all figure. A small condo building without extensive common amenities might not need as large a slice of its budget for the reserve as a bigger condo with multiple lobbies, a pool, and complex mechanical systems.
 

What if there is insufficient funding?

In an attempt to keep condo fees low, some Ontario boards might reduce monthly contributions to the reserve fund. But when big-ticket projects pop up, insufficient reserve funds can cause serious issues:

• Special assessments: A special assessment requires residents to contribute extra funds to cover the costs of a capital improvement project. If reserve funds are too low to cover a necessary project, this option is sometimes unavoidable. However, residents are often caught off guard by these hefty special assessments, causing financial strain and frustration.
   
• Loans and debt: The board may opt to borrow from a bank or other lenders to fund repairs — meaning interest payments and a more complicated debt load for the condo corporation.
   
• Deferred maintenance: Postponing repairs (like ignoring a leaking roof) often leads to bigger bills later (e.g., interior damage, mold remediation), ultimately costing the community more.
   
• Lower property values: Potential buyers can be put off by a condo with an underfunded reserve, impacting resale prices and making it harder for owners to sell.

How does a condo reserve study help?

The best way to figure out exactly how much you should be contributing is through a reserve study, also referred to as a reserve fund study. This involves two main parts:

• A physical analysis, which involves an onsite inspection of the components on your property and an estimate of their expected useful life (in general, every other study should include a site inspection).
   
• A financial analysis, which looks at how much you currently have in your reserve fund and determines how much money you need to collect each year to adequately cover the cost of making repairs or replacing those components (best practice says corporations should update numbers every year as part of their annual budget process).

Reserve studies must be completed by a qualified individual, such as an engineer, architect, architectural technologist, or a Certified Reserve Planner (CRP), which is designated by the Real Estate Institute of Canada.

Upon reviewing the study, boards must understand both the capital cost and operational costs of each project. For instance, if a board needs to replace a chiller in 10 years, does the estimate include the necessary upgrades for preventative maintenance in the operating budget? Are installation costs included in the estimate as well? Ontario boards should not be afraid to challenge the assumptions with their reserve fund professional; after all, it is the board’s responsibility to understand the plan, so ask questions!
 

How often should you update your reserve study?

An initial reserve fund study must take place within the first year of a condo’s incorporation. Follow up studies must be performed every three years after the initial study. In general, every other updated study should include a site inspection.

Some of the factors that might alter previous recommendations include inflation, changes in the condition of individual components or how they are being used, unexpected situations such as weather events or emergencies, and your level of compliance with the previous recommendations. An experienced property management company can help you determine when you should get an update.
 

How a property management company can help

A professional property management company can bring invaluable experience and resources to help condo boards successfully plan, fund, and administer their reserve funds.

1. Expertise on budgeting and reserves

   Skilled managers can help you interpret reserve study results and integrate them into your annual budgets, helping you set aside the right amount for future projects. Additionally, property managers can coordinate with engineers or Certified Reserve Planners to keep your study current, factoring in inflation, project changes, and any new amenities.
    

2. Strategic maintenance and project scheduling

   Professional property managers can simplify planning for multi-year project schedules. By mapping out large-scale projects well in advance (e.g., an elevator refurbishment in 2025 vs. parking garage repairs in 2028), we’ve helped our clients avoid hitting multiple major expenses all at once so their reserve spending can remain balanced.
    

3. Vendor and contractor partnerships

   We understand that large-scale repairs need trustworthy contractors. Whether it’s a new roof installation or a major mechanical overhaul, our property managers have established relationships with a network of trusted service providers. This often allows your community to secure better pricing, streamlined scheduling, and less administrative hassle. Our team can also handle bidding and vetting, so board members don’t need to become overnight experts in roofing or HVAC engineering.
    

4. Communication and transparency

   When it’s time to adjust monthly fees or start a massive repair project, residents want to know the “why.” An experienced management partner can help communicate new developments in a clear, reassuring way. Newsletters, resident portals, and special board meetings all serve to keep people in the loop. Clarity helps everyone see that the board is being proactive rather than reactive.
   
   With FirstService Residential Connect™, board members, residents, and condominium managers have a direct line of communication at their fingertips. Residents can receive instant notifications about community updates, maintenance schedules, and emergency alerts. Board members can securely access financial records, legal documents, and meeting minutes, while also sharing important announcements.

If your condo board feels unsure about its current reserve fund status or needs help putting the right structures in place, partnering with an experienced property management company can make all the difference. From coordinating reserve studies to advising on financing solutions, FirstService Residential has the expertise to help you create a stable financial foundation.

Contact FirstService Residential today for expert advice on reserve fund planning, budgeting, and community management.