If you’re in the market to buy a condominium, you have probably encountered the term “maintenance fee”. By reading our blog posts, you have come to figure out the maintenance fee is an additional expense on top of your mortgage and living expenses which is calculated by the total square footage of space you own within a condominium.
This monthly fee goes towards different utilities, services and expenses of the building including the reserve fund, but what exactly is the reserve fund?
According to the Condominium Authority of Ontario, a reserve fund is “a special account with a financial institution such as a bank, loan and trust corporation or credit union.” The Condominium Act, 1998 requires all condominiums to have a reserve fund.
The reserve fund is to ensure the condominium corporation has enough funds set aside to cover any future and unexpected repairs.
Reserve funds are incredibly important. One of the most important reasons why a reserve fund is necessary is to avoid special assessments.
Special assessments can be charged to all unit owners within a condominium corporation on top of the existing monthly maintenance fee by the board without permission. Special assessments occur when there are unforeseen expenses, under-budgeting and losing a lawsuit.
When looking to purchase a condominium its incredibly important to make the purchase conditional upon reviewing the status certificate by a lawyer. The status certificate will highlight any special assessments and the financial status of the building.
Some buildings are even blacklisted by lending institutions. If the risk is too great, a lending institution might not approve you for a mortgage unless you put 20 per cent down.
By reviewing the status certificate before making your offer firm, you will be able to know the financial health of a building before fully committing. This could avoid you large and unexpected additional costs.
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