Contingency Reserve Funds and Special Levies
1. What is the Contingency Reserve Fund?
Strata corporations must have a
contingency reserve fund (“CRF”)
to pay for
common expenses that
- usually occur less often than once a year; or
- do not usually
occur.
The contributions from strata owners to the CRF should be
included in every
budget approved at an annual general meeting.
Usually, CRF contributions will appear as a single line
item in the budget, and the
budget will not detail any specific use of the CRF.
Separate sections within a strata corporation have a duty
to establish their own
operating fund and CRF for common expenses that relate
exclusively to the
section. However, common expenses shared by different sections
cannot be
included in separate section budgets, and must be included
in the strata
corporation budget as a common strata corporation expense.
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 and
CRF.
2. Contributions to the CRF
Usually, CRF contributions are based on the unit entitlement
of each strata lot in
the strata corporation. Contributions to the CRF are approved
in the annual budget
and collected through strata fees.
If the strata corporation has separate section budgets,
CRF contributions for that
section are usually based on the unit entitlement of each
strata lot in the section.
Contributions to the separate section CRF are approved
in the separate section
annual budget and collected through separate section strata
fees.
[Note: strata corporations with separate sections will
usually have both separate
section budgets for section expenses and a strata corporation
budget for expenses
common to strata lots in all sections.]
The following may also be added to the CRF:
- surplus funds from the previous year’s
operating fund; and
- surplus funds from a special levy, as long as the surplus
funds owing to each
strata lot is $100 or less.
3. Minimum/Maximum Contributions
The amount that a strata corporation must contribute
to the CRF is based on the
total annual budgeted contributions to the operating fund
for the fiscal year that
just ended.
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, the minimum
contribution to the CRF must
be at least 10% of the total contribution to the operating
fund for the current
year;
12.3
- 25% or greater but is less than 100% of the total
annual budgeted contribution
to the operating fund for the fiscal year
just ended, the contribution to the CRF
may be of any amount; or
- equal or greater than 100% of the
total annual budgeted contribution to the
operating fund for the fiscal year just ended,
any contribution to the CRF must
be approved by a resolution passed by a ¾ vote at
an annual or special general
meeting.
4. Depreciation Reports
A depreciation report may be used to assist
a strata corporation in determining the
amount that it should be contributing to the CRF. However,
a depreciation report
is only a guide for the strata corporation. CRF contributions
ear marked for a
certain purpose in a depreciation report can actually be
spent for any purpose for
which the fund may be used.
A depreciation report may never be used to lower the CRF
contribution below the
minimum contribution required by the Act.
The depreciation report should estimate the repair or replacement
cost and the
expected life of each major item of the common property
(e.g. the roof) or the
common assets (e.g. playground equipment).
At this time there is no standard prescribed form which
must be used for a
depreciation report.
Strata corporations may want to consider including the
following items when
preparing a depreciation report:
- electrical system
- heating system
- plumbing system
- elevators
- exterior walls
- roof
- carpeting and furnishings
- interior and exterior painting
- parking facilities and roadways
- recreational facilities
This list is not exhaustive and a strata corporation may
prepare a depreciation
report for any common
property or assets belonging
to the strata corporation.
5. Expenditures from the CRF
Expenditures from the CRF must be:
- approved by a ¾ vote at an
annual or special general meeting;
and
- consistent with the purpose of the CRF.
6. Unapproved Expenditures from the CRF
An unapproved expenditure will only be 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.
7. Investing and Managing the CRF
The CRF can be invested or held:
- in an insured account at a savings institution in
British Columbia; or
- in an investment permitted by section 15 of the Trustee
Act (see attached
Appendix “A”).
The CRF:
must be accounted for separately from other monies
held by the strata
corporation
or separate
section;
- must include any interest or income
earned on the
CRF;
- can be used to secure a strata corporation
loan by
approval of a ¾ vote;
and
- can be lent to the operating fund to cover temporary
shortages resulting from
expenses becoming
payable before the
budgeted monthly
contributions to
the
operating fund to cover
these expenses have been
collected.
- a loan made to cover a short term temporary shortage
in the operating fund
must be repaid by
the end of that
fiscal year; and
- if a loan is made,
the strata council must inform
owners as soon as feasible
of the amount and
purpose of the loan
8. Claim to Monies in
the CRF
When the sale of a strata
lot occurs, the seller
is not entitled to a
return of
contributions to the CRF.
9. What is a Special Levy?
A special levy is monies collected for a specific purpose:
- where the expenditure has not been included in the
annual budget because it
was either not contemplated
or because of the infrequency
of the expense;
- where there are
insufficient funds in the CRF; or
- where a decision is made not to use monies
from the
CRF.
10.
Preparing
a Resolution
for a Special
Levy
A resolution approving a special levy must:
- set out the purpose of the levy;
- state the total amount of
the levy;
- state the method for determining each
strata lot’s
share of the levy;
- state the amount each strata lot must pay;
and
- state the date(s) by which the levy must be paid.
11. Approving and Contributing to a Special Levy
A strata lot owner will contribute to a special levy:
- in the same way that strata fees are paid, which is
usually by unit entitlement,
but may be by some
other method, if the
strata corporation
has approved by
unanimous resolution,
an alternative method
of apportioning strata
fees; or
- by a fair division of expenses.
A special levy must be approved at a general meeting. The
vote
necessary to
approve a
special
levy will be:
- a ¾ vote if contributions to
the levy are apportioned
in the same way as strata
fees are apportioned;
or
- a unanimous
vote if contributions to the levy are
apportioned by a fair division
of the expense rather
than the
way that strata fees are apportioned.
When a strata lot
is sold, if a special
levy is approved before
the strata lot is
conveyed to the purchaser:
- the seller will owe the strata corporation the
portion
of the levy that is payable
before the date the
strata
lot is conveyed to the purchaser;
and
- the purchaser will owe the strata corporation the
portion of the levy that is
payable on or after
the
date the strata lot is conveyed.
12. Expenditures
and Uses of a Special
Levy
Monies collected for a special levy must
only be spent for the purpose
of the
special levy.
The strata council must inform
owners on how monies raised
from a special levy
have been spent.
The special levy can be used
to secure a strata corporation
loan by approval of a
¾ vote.
13. Excess Special Levy Funds
The strata corporation must return excess funds from a special
levy to the owners
in the same
proportion that
the levy was collected,
if there is at
least one owner
entitled to more than
$100.
If no owner is entitled
to more than $100, the
strata corporation may
deposit the
excess funds
in the CRF.
References:
Sections of the Act:
1, 91-96, 98-101, 103,
105, 108, 109, 111, 158,
194, 195
Sections of the Regulations: 6.1-6.6, 11.1-11.3
APPENDIX “A”
Trustee Act
15 A trustee may invest trust money in his or her
hands,
if the investment is in all other respects reasonable and proper,
in
(a) securities of Canada, a province, the United
Kingdom, the United States
of America or a municipal corporation in a province,
(b) securities the payment of the principal
and interest of which is guaranteed
by Canada, a province, the United Kingdom, the United States of America
or a municipal corporation in a province,
(c) securities issued for school,
hospital, irrigation, drainage or
other similar purposes that are secured
by or payable out of rates or taxes levied under
the law of
a province on property in that province,
(d) bonds, debentures or other
evidence of indebtedness of
a corporation that are secured by the assignment to a trustee of
payments that Canada or a province has agreed
to make, if those payments are
sufficient to meet the interest on all the bonds, debentures
or other evidence
of indebtedness outstanding as it falls due and also to meet the principal
amount of all the bonds, debentures
or other evidence of indebtedness on maturity,
(e) bonds, debentures or other evidence
of indebtedness of a corporation incorporated
under the laws of Canada or a province that are fully secured by
a mortgage, charge or hypothec to
a trustee on any one or combination of the following assets:
(i) land;
(ii) the plant or equipment of a corporation
that is used in the transaction of its business;
(iii) bonds, debentures or other
evidence of indebtedness or shares
of a class or classes authorized
by this section,
(f) bonds, debentures or other evidence of indebtedness
of a
corporation incorporated under the laws of Canada or a province if the corporation
has earned and paid a dividend,
(i) in each of the 5 years immediately
preceding the date of investment, at least
equal to the specified annual rate on all of its preferred
shares, or
(ii) in each year of a period of 5 years
ending less than one year before the date
of investment, on its common shares of at least 4% of the average value at
which the shares were carried
in the capital stock account of the corporation during the year
in which the dividend was paid,
(g) guaranteed trust or investment certificates of
(i) a bank, or
(ii) a corporation that is incorporated under the laws
of Canada or of a province and
that has a business authorization to carry on trust business
or deposit business,
(h) bonds, debentures or other evidence of indebtedness
of a loan corporation or similar corporation
(i) that at the time of investment has all of the following:
(A) power to lend money on mortgages, charges or hypothecs
of real estate;
(B) a paid up nonreturnable capital stock of
not less than $500 000;
(C) a reserve fund amounting to not less than 25% of its
paid up capital, and
(ii) the stock of which has a market value
that is not less than 7% in excess of its par
value,
(i) preferred shares of a corporation incorporated under
the laws of Canada or of a province if the corporation
has paid a dividend,
(i) in each of the 5 years immediately preceding
the date of investment, at least equal to the specified annual rate on
all of its preferred shares, or
(ii) in each year of a period of 5 years ending less than
one year before the date of investment, on its common shares
of at least 4% of the average value at which the shares were
carried in the capital stock account of the corporation during
the year in which the dividend was paid,
(j) first mortgages, charges or hypothecs on land in Canada,
but only if the loan does not exceed 75% of the value of
the property at the time of the loan as established by a
valuator whom the trustee believes on reasonable grounds
to be competent and independent,
(k) securities issued or guaranteed by the International
Bank for Reconstruction and Development established by the
Agreement for an International Bank for Reconstruction and
Development, approved by the Bretton Woods and Related Agreements
Act (Canada), but only if the bonds, debentures or other
securities are payable in the currency of Canada, the United
Kingdom, a member of the British Commonwealth or the United
States of America,
(l) fully paid common shares of a corporation incorporated
under the laws of Canada or of a province that, in each year
of a period of 7 years ending less than one year before the
date of investment, has paid a dividend on its common shares
of at least 4% of the average value at which the shares were
carried in the capital stock account of the corporation during
the year in which the dividend was paid, and
(m) deposits in, or non-equity or membership shares or
other evidence of indebtedness of, a credit union. |
