The contingency reserve fund (CRF) in Strata Corporations
Under the Strata Property Act, strata corporations and sections must have contingency reserve funds (CRFs) to pay for common expenses that usually occur less often than once a year; or 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 the owners and collected through strata fees. Contributions to the CRF are not refundable to owners. Typically, the CRF will have contributions from current and previous strata lot owners. CRF contributions are usually based on the unit entitlement of each strata lot in the strata corporation.
Contributions from strata owners to the CRF should be reviewed at every AGM (annual general meeting) as part of the annual budgeting process and with consideration to the depreciation report. Usually CRF contributions will usually as a single expense line item in the budget, and the budget will not detail any specific use of the CRF.
The Strata Property regulations require that the CRF must have a minimum level of funding equivalent to 25% of the annual operating fund. However it is the depreciation report, not the operating fund, which provides information about the longer term repair, maintenance and replacement costs for the strata corporation.
Contributions to the CRF must be made with consideration to the depreciation report.
Most strata corporations will have significantly more than the legal minimum in the CRF in order to have funds on hand to pay for longer term repair, replacement and maintenance costs.
If the amount in the CRF is less than 25% of the total annual budgeted contribution to the operating fund for the fiscal year that just ended, then the minimum contribution to the CRF must be at least 10% of the total contribution to the operating fund for the current year until the 25% minimum is reached.
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.
Under Part 11 of the Strata Property Act, strata lots can be organized into formal groups, which are called sections. The sections represent 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 different interests than a residential section.
Separate sections within a strata corporation have a duty to establish their own operating fund for common expenses that relate exclusively to the section and a CRF for expenses that relate exclusively to the section. Note: 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 corporations with separate sections must have both separate section budgets and section CRFs for those section expenses that relate exclusively to that section. Contributions for the section budget are usually based on the unit entitlement of each strata lot in the section.
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.
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 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
- if the expenditure does not exceed what is required to ensure safety or prevent loss or damage or
- if the expenditure is for the purpose of paying an insurance deductible required to repair or replace damaged property
If an unapproved expenditure occurs a 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; for example, if an annual bill is due mid-year but won't be covered by strata fees until fiscal year end. 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.
Strata Property Act Sections: 92-96 and 98
Strata Property Regulation: 3.4, 6.1, 6.2, 6.3 and 6.11
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