What is a Contingency Reserve Fund in Real Estate
CRF Frequently Asked Questions
Written By: Mariko Baerg, REALTOR of Bridgewell Real Estate Group
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When you’re purchasing a strata property, like a condo or a townhouse, it’s important that you read through the proper strata documents to determine what red flags there may be. The contingency reserve fund (CRF) in strata corporation, and the state of that fund will be a large determining factor as to whether or not you should purchase the property, and also what the future holds in terms of shared expenses and repairs.
What is a contingency reserve fund? What is CRF in real estate?
A CRF in real estate stands for Contingency Reserve Fund. A contingency reserve fund is a fund used for strata properties such as condos and townhouses to fund common expenses that usually occur less often that once a year, such as maintenance, upgrades, and renovations for the complex or building.
For example, money may be taken out of a contingency reserve fund to be used to paint the complex, or put on a new roof. These expenditures must be approved by owners, unless it is for emergency repairs or insurance deductibles that are a common expense.
What are examples of CRF expenses?
The contingency reserve fund is used to help fund projects that are required for maintenance or upgrades to a strata property.
Some common examples of what the CRF expenses are: replacing the roof, upgrading the elevator, repaving a road, painting the exterior, updating the exterior siding, and rainscreening.
How do I know how much is in the contingency reserve fund?
The amount that is in the CRF can be found in the ‘Form B’ document related to the unit that you are purchasing. This should be provided prior to or upon an accepted offer, or at the very latest during the subject removal period.
What is a “good” contingency reserve fund?
A good contingency reserve fund depends largely on the year the property was built and what is expected for maintenance and repairs over a period of time. 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.
An excellent indicator for whether the contingency reserve fund is adequate is the depreciation report. This report should be provided to you prior to or upon an accepted offer for both yours, your realtors, and the lenders review. Contributions to the CRF must be made with consideration to the depreciation report.
Related article on how to read depreciation reports: Depreciation Reports – Inside the Inspector’s Head
What is a special levy?
A special levy is an amount that is due and payable by the owners of each strata lot to help cover the expenses related to some repair or maintenance determined by the strata. The amount of the special levy is dependent on how large the cost of the repair is, how much money the strata has agreed to take out from the CRF, and how many units there are to split the total levy.
If a contingency reserve fund is underfunded then what happens?
The Strata Property regulations require that the CRF must have a minimum level of funding equivalent to 25% of the annual operating fund.
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.
If a CRF is underfunded then typically you can expect one of three things, or all to happen:
- Strata maintenance fees will increase to help replenish the reserve
- A special levy will be due for upcoming bills/maintenance
- Surplus funds [if any] from the previous years operating fund contributed to the CRF
If the reserve is underfunded then the strata will want to make sure that they begin action plans for replenishing the funds and stay on track with regular maintenance and upcoming depreciation. There are rules on how much money can be withdrawn from a contingency reserve fund for each particular project.
The depreciation report will help you to estimate different funding models that are recommended by an engineering company to determine how much will need to be paid to maintain and repair the building or complex over a long period of time. The depreciation report will stipulate when special levies are expected, how substantial they will be, and how much money should be in the contingency reserve fund at any point in time.
Related Article on Strata Documents: Important Strata Documents to Read
When I sell my unit, am I entitled to part of the CRF?
When the sale of a strata lot occurs, the seller is not entitled to a return of contributions to the CRF. The contingency reserve fund runs with the strata, and not with the owners.
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If you’re thinking of purchasing a strata property it’s important that you know what documents you need to read and how to read them. Call us today at 604-765-0376 to assist you when reading strata documents, purchasing a strata property, and/or determining what red flags there are. Prefer text? 604-319-0200. Or email [email protected] .
