Strata Law: Contingency Reserve Fund

A Contingency Reserve Fund (CRF) is a fund for common expenses that usually occur less often than once per year or that do not usually occur. The CRF of each strata is an amount of money that is used for contingencies. Such as major expenses not covered in the normal maintenance budgets.

The strata has a budget which has to be approved by the members on an annual basis at the Annual General Meetings(AGM's). In the budget there are monies allocated to maintenance and management of the building(s) and land(s) that are part of the strata. There is also money put into the CRF for issues like major renovations or unexpected damage to the property. CRF's are commonly used for new roofs, new boilers, envelope repair, security upgrades or whatever is agreed upon by the strata by way of a vote of not less than 3/4. Usually this is done in the Annual General Meeting(AGM) or sometimes in a Special General Meeting(SGM) if the problem needs to addressed sooner.

The strata corporation must not spend the money without approval unless the expense is necessary to ensure safety or prevent significant loss or damage and does not exceed the required amount to ensure safety or prevent loss or damage, or is for the purpose of paying an insurance deductible for damaged property. The CRF can also be used as a loan to cover shortfalls in the operating budget, but it has to paid back to the CRF by the end of the fiscal year.

How much are the contributions to the CRF?

After the first AGM, if the amount is less than 25% of the previous operating budget, the strata's annual contribution must be at least 10% of the the total contribution to the operating fund for the current year. If the amount in the CRF is equal to or greater than the total annual budgeted contribution to the operating fund for the fiscal year that just ended, then any other contributions must be approved by a 3/4 vote at an AGM or SGM.

There are also regulations regarding the investment of such funds. This information is for the province of British Columbia, Canada. Many strata are run the same, but not all are equal. Here is a link to learn more about CRF's in British Columbia.

The CRF should always be a priority when looking over the financials of any stratified property. It can add or decrease value on the investment.

 Source: BCREA Strata Law for REALTORS®; Province of British Columbia 'What to Know about CRF's and Special Levies'

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