So, You Think You Know Your Common Elements? Part 2

Reserve Fund Study with Condition Assessment

CCI-Review, CCI-London and Area, March 2019

In Part 1 - Reserve Fund Study vs Condition Assessment, we discussed the differences between a Reserve Fund Study and a Condition Assessment. A Reserve Fund Study uses high-level information collected on site to provide a long-range budgeting tool and help the Board establish Reserve Fund contribution rates. A Condition Assessment is a detailed review of a specific building component to provide improved accuracy on budgets, timing, and options for repair or replacement, and may include testing, intrusive investigations, interviews, and detailed drawing reviews.

By the end of Part 1, we agreed that “Knowing is better than not knowing” and completing a Condition Assessment will help you plan timing and budget for projects. What happens when the risk identified has some level of urgency? Let’s amend our lesson:

Knowing now, and planning accordingly, is better than finding out later!

Not catchy, but crucial. Today, we’re discussing how to complete a Condition Assessment in the midst of your Reserve Fund Study – and why it’s an important tool for protecting your condo community.

My Reserve Fund Study engineer has recommended further review – now what?

If a Condition Assessment is recommended in conjunction with a Reserve Fund Study, the Condition Assessment will serve as a way of developing more detailed budgets and timing for repairs than would otherwise be provided through the Reserve Fund Study. The budgets and timing can then be incorporated into the Study to allow your Board to allocate funds accordingly.

How do we establish Useful and Remaining Useful Life to determine when a repair project should occur?

Useful Life is established by our experience with the component, adjusted by assumptions for quality, rate of wear and tear, expected normal maintenance and exposure. Remaining Useful Life is established primarily by the component’s current observed condition and performance. This observed age may not be equal to the chronological age of the components, due to accelerated wear or low usage.

During the site review, your engineer will determine whether:

  1. There are signs that the component is prematurely wearing;
  2. The component is in better condition than expected and replacement can be delayed; or
  3. The component it is aging as expected and will be replaced at a typical useful life.

For components requiring specialist expertise (such as elevators), or where age characteristics are not visible, we typically interview the corporation’s service vendors and obtain their assessment to help establish Useful and Remaining Useful Life.

What if repairs are required now?

Depending on the findings during the Condition Assessment, you may be required to complete work much sooner than expected. Typically, we would recommend preparing Bid Documents and Specifications and tendering the work to pre-qualified contractors. Work with your engineer to create a detailed scope of work and contract conditions, and make sure the contractors you allow to bid on the work are interested and qualified. Once pricing is received, you will have an accurate project budget and can consider available funding options. Depending on the structure of the contract conditions, there is typically no obligation to proceed with repairs.

My engineer completed a Condition Assessment and recommended a Reserve Fund Study update, but our update isn’t due for another year.

In some cases, you may invite your engineer to investigate some roof leaks. While on site, your engineer identifies some red flags and recommends a Condition Assessment – which unfortunately only confirms your worst fear – there are unexpected repairs required. The next step is to update your Reserve Fund Study – perhaps your study anticipates replacing the windows now and roofs in 5 years, but a Reserve Fund Study could provide opportunity to defer the window project and pull the roof project forward. Taking a holistic approach is a great way to confirm funding options available to the Corporation, including deferral of other projects.

What does this process look like?

Sometimes a Reserve Fund Study will trigger a Condition Assessment, and sometimes a Condition Assessment or repairs will trigger a Reserve Fund Study update. Typically, the process might look something like this flowchart.

How do we keep Owners informed?

Talk to your engineer about hosting a Townhall/Owners’ Meeting or reviewing the Reserve Fund Study at your AGM. If immediate repairs are required, it is important to make the Owners aware of the upcoming repairs and any financial impact this may have as early as possible. Your engineer can also present the Condition Assessment and answer questions. In our experience, communicating early and often – especially when there is a financial impact on the Owners – is the key to successfully managing this process.