The Contingency Fund

The payment of the common expenses (or condo costs) probably constitutes the most recognized obligation of a co‑owner.  When visiting a condo that is for sale, one of the main questions that potential buyers ask is what is the monthly amount that must be paid for the common expenses?  Indeed, no one wants to pay a big amount and we often give a high importance to the immovable where the condo costs are low.  But, often in these situations the reserve fund is insufficient.

Generally, this perception of co‑ownership does not correspond to a healthy and effective administration.  Article 1064 of the Civil Code of Québec establishes the principle foundation to the effect that:

Each co‑owner contributes in proportion to the relative value of his fraction to the expenses arising from the co‑ownership and from the operation of the immovable and the contingency fund established under Article 1071(…)“.

Thus, it is Article 1071 of the Civil Code of Québec that stipulates that:

The syndicate establishes, according to the estimated cost of major repairs and the cost of replacement of common portions, a contingency fund to provide cash funds on a short term basis allocated exclusively to such repairs and replacement.  The syndicate is the owner of the fund.”

Finally, Article 1072 of the Civil Code of Québec indicates how the contribution to the common expenses is established:

Each year, the board of directors, after consultation with the general meeting of the co‑owners, fixes their contribution for common expenses, after determining the sums required to meet the expenses arising from the co‑ownership and the operation of the immovable, and the amounts to be paid into the contingency fund.  The contribution of the co‑owners to the contingency fund is at least 5 per cent of their contribution for common expenses.  In fixing the contribution, the rights of any co‑owner in the common portions for restricted use may be taken into account.”

By reading these three (3) articles, we note that the common expenses can be divided two (2) ways:  the common costs for the daily expenses and those for the major repairs and the cost for replacement of common portions that will be deposited in the contingency fund.

The amounts in the contingency fund cannot be applied to anything other than what is provided for in the law.  Thus, it is forbidden to:

  • pay a supplier from this fund that rendered services to the co‑ownership,
  • pay attorney or notary professional fees,
  • pay anything related to the general administration of the co‑ownership.

If an unforeseeable expense is too costly to be paid with the sums from the general account, the directors must ask all co‑owners for a special contribution to provide for this insufficient reserve.

Another disposition that often comes back in immovables held in divided co‑ownership is the respect of the minimum percentage provided for in the law for the contribution to the contingency fund.  Thus, the directors content themselves to ask five percent (5%) of the contributions for the common expenses and consider themselves satisfied to be in conformity with Article 1072.

Nothing is more false.  According to Article 1071, the syndicate must establish a contingency fund that is based on the approximate cost for major repairs and the replacement cost for common portions.  The best way for the syndicate to proceed is to have a maintenance notebook wherein, with the assistance of a professional, a list can be addressed with regards to the common portions of the immovable and their approximate life expectation.  For example, if it is established by an engineer that a roof’s life expectation is 10 years and the cost of replacement is estimated at $20,000, the syndicate could establish for this specific element an annual contribution of $2,000 for the next 10 years, which will assure that the required amount at the time of performing the corrective work is available and so forth for each common expense.  This way of proceeding will permit to realize that the legal minimum percentage is often insufficient to ensure the life expectation of the immovable.

Consequently, it is important to ensure that the contingency fund is well garnished at all times.  The sums deposited will serve at the given time for major repairs to the common portions without having to ask the co‑owners for a special contribution.  Thus, when future condo buyers realize that the common expenses are high with respect to their share, their first impression will be that it is a possible good indication that the contingency fund is well administered, the whole subject to the necessary verifications.

Maître Karl De Grandpré
Azran & Associés Avocats Inc.

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