Operating fund versus reserve fund
The operating fund pays this year's recurring costs: cleaning, insurance, utilities, small repairs. The reserve fund accumulates for capital replacement. They must be separate accounts, and reserve money must not be quietly used to cover an operating shortfall.
How the number is set
- 1
Inventory the components
List every shared element with a finite life: roof, elevator, boiler, facade, windows, parking surface, intercom, common-area finishes.
- 2
Estimate remaining life and replacement cost
For each component, how many years are left and what replacing it costs today. This is what a professional reserve study produces, and why it is worth buying every three to five years.
- 3
Convert to an annual contribution
Replacement cost divided by remaining life, summed across components, adjusted for what is already in the fund and for inflation. That annual figure divided by twelve is the monthly reserve line in the dues.
- 4
Re-check every year
Update the study's assumptions against actual spend and actual quotes. A five-year-old cost estimate is usually 20 to 40 percent low.
Percent funded, and what 'healthy' means
- Above 70 percent funded: strong; a special assessment is unlikely.
- 30 to 70 percent: common, manageable if contributions are rising.
- Below 30 percent: fragile; one major failure forces a special assessment or a loan.
Getting from under-funded to funded
Raising dues by a large amount in one year rarely passes. What does pass is a published multi-year path: a modest increase each year, tied to the reserve study, shown to owners as a chart with the special assessment they are avoiding. Transparency is what carries the vote.
Questions fréquentes
How much should a condo association keep in reserve?
There is no universal figure — it depends on the components and their remaining life. A reserve study produces the number. As a rule of thumb, associations aim to stay above 70 percent funded relative to that study.
Is a reserve study legally required?
It depends on jurisdiction: several US states, several Canadian provinces and a growing number of European regimes require periodic studies, and lenders increasingly ask for them. Even where optional, it is the cheapest way to avoid a surprise assessment.
Can we borrow from reserves to cover operating costs?
Usually only as a documented, board-approved short-term loan with a repayment schedule, and in some jurisdictions not at all. Treat it as an emergency measure, and disclose it to owners.