The contingency reserve fund (CRF) in strata corporations
Every strata corporation and section must have contingency reserve funds (CRFs) to pay for common expenses that usually occur less often than once a year; or which do not usually occur.
Effective Nov 1, 2023, strata corporations and sections are required to contribute a minimum of 10% of the annual operating fund to the CRF.
Learn more on this page:
Purpose of the CRF
Minimum annual contributions to the CRF
The CRF and the depreciation report
Sections and the CRF
Claims to monies in the CRF
Expenditures from the CRF
Investing and managing the CRF
Under the Strata Property Act, every strata corporation and section, must have a contingency reserve fund (CRF). The CRF helps to pay for expenses that occur less than once a year, or that do not usually occur. Examples of CRF expenses include: replacing the roof, upgrading the elevator or repaving a road.
Contingency reserve fund expenditures are usually identified in advance by a depreciation report and must be approved by owners, unless it is for emergency repairs or insurance deductibles that are a common expense.
Contributions to the CRF are approved in the annual budget by a majority vote of owners. CRF contributions are collected through strata fees, which are based on unit entitlement. Contributions to the CRF are not refundable to owners.
Other funds may also be added to the CRF including: surplus funds from the previous year's operating fund; surplus funds from a special levy (as long as the surplus funds owing to each strata lot is $100 or less); or sale of assets.
Effective November 1, 2023, when approving budgets at the annual general meeting, strata corporations and sections are legally required to contribute a minimum of 10% of the total amount budgeted to the annual operating fund to the contingency reserve fund (CRF).
Most strata corporations are already contributing more than this legal minimum to the CRF, in order to have funds available to pay for longer-term repair, replacement and maintenance costs.
Contributions to the CRF are approved in the annual budget by a majority vote of the owners and collected through the strata fees. Usually the contributions to the CRF appears as a single expense line in the budget.
Effective November 1, 2023, for new strata corporations, the owner developer must also contribute more to the contingency reserve fund. The owner developer must contribute the lesser of (a) 10% of the estimated operating expenses multiplied by the number of years since the strata plan was deposited, or, (b) 50% of the estimated operating expenses. These amounts are being increased from 5% and 25% respectively.
Contributions to the CRF should be made with consideration of the depreciation report. The depreciation report provides information about the longer-term repair, maintenance and replacements costs for the strata corporation or section.
Under Part 11 of the Strata Property Act, strata lots can be organized into formal groups, which are called sections.
- A section represents the interests of the strata lot owners in the section.
- Each section operates independently from other sections in the strata corporation with respect to matters that relate solely to the section. For example, a commercial section with a restaurant may have some interests which are different from a residential section.
Each section within a strata corporation must establish its own operating fund for common expenses that relate exclusively to the section and a CRF for expenses that relate exclusively to the section. The owners of the strata lots in the section pass an annual budget for their section. Usually the contribution to the section's CRF appears as a single item in the section's operating budget. Section strata fees are usually based on the unit entitlement of the section strata lots.
Contributions to the separate section operating fund and the CRF are approved in the separate section annual budget and collected through separate section strata fees.
Strata lot owners in a section will also contribute to a strata corporation budget and strata corporation CRF for expenses common to strata lots in all sections, or expenses that are shared by more than section. (Common expenses shared by different sections cannot be included in separate section budgets, these expenses must be included in the strata corporation budget as a common strata corporation expense).
Strata lots that are differentiated as different types of strata lots in a bylaw do not have the power to establish their own operating fund, CRF and bylaws in the way that sections do.
When the sale of a strata lot occurs, the seller is not entitled to a return of contributions to the CRF.
The CRF is used to pay for expenses that occur less often than once a year or that do not usually occur.
Expenditures from the CRF must be:
- consistent with the purpose of the CRF
- approved by a majority vote
- if the expenditure is necessary to obtain a depreciation report or
- is related to the repair, maintenance or replacement---as recommended by a depreciation report---of common property, common assets or portions of a strata lot for which the strata corporation has taken responsibility by bylaw
- a 3/4 vote is required in almost all other cases.
An expenditure from the CRF without an owners' vote of approval is only permitted if:
- the expenditure is necessary to ensure safety or prevent significant loss or damage and
- the expenditure does not exceed what is required to ensure safety or prevent loss or damage or
- the expenditure is for the purpose of paying an insurance deductible required to repair or replace damaged property
If an unapproved expenditure occurs the strata council must inform owners as soon as possible about the expenditure unless the expenditure was to pay for an insurance deductible.
The CRF can be invested or held:
- in insured accounts with savings institutions in British Columbia
- in those investments permitted by Strata Property Regulation 6.11.
The CRF must be accounted for separately from other monies held by the strata corporation or separate section and must include any interest or income earned on the CRF.
The CRF can be used to secure a strata corporation loan by approval with a 3/4 vote.
Funds from the CRF can also be loaned to the operating fund to cover temporary shortfalls. The money must be repaid to the CRF by the end of that fiscal year and the strata council must inform owners as soon as feasible of the amount and purpose of the loan.
- For example, a strata corporation receives a larger than anticipated bill for insurance early in their fiscal year and after the budget was approved. As there is not enough cash in the operating bank account, the strata council votes to approve a temporary loan of $10,000 from the CRF to pay the insurance bill. The council then decides to pay the money back to the CRF in installments of $2,000 per month for the next five months. The strata council informs owners via the strata council minutes.
Strata Property Act Sections: 12-13, 92-96 and 98
Strata Property Regulation: 3.01, 3.4, 6.1, 6.2, 6.3 and 6.11
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