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#94
Jony ()
Reserve funds study 2007/06/19 23:46  
We are planning to do our reserve funds study.Can we have the same Engineering firm to do this time as well ? Can we trust any Engineering firm ?
Please advise us.
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#190
Roland ()
Re:Reserve funds study 2007/07/04 23:57  
I just went through a review of our RFS with our Engineer... quite interesting. We were thinking that we would require another Engineer after our management transition but really, it's the board of directors that must line by line, go through the items in the reserve questioning everything until comfortable.

Although, if you feel more comfortable with another Engineer, keep in mind that they will have different view of your building and therefore your new RFS may not be favourable to your corporation.

The board decides how well they would like the building maintained over the years. The Engineer, especially on esthetic items, will have no problem extending the period at which replacement would be anticipated.

BUT, keep in mind that if the owners decide to change the carpeting in 5 years when you planned say for 10 years then you will have to start making up the difference or extend other items so that the reserve will have the appropriate funds for the carpet replacement.
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#253
Mark ()
Re:Reserve funds study 2007/07/16 18:25  
I looked at our Reserve Fund Study and my impression is that the engineers used a template to produce the report. They looked at the list of all the components, their estimated life span and the replacement costs. That's about it. The reality, however, can be completely different if a component was not maintained properly.
To do a solid inspection of each element would be very costly, however. I think that there is a lot of risk (not well assessed) in Reserve Fund Studies.

It is a very important topic. Please share your experience and thoughts.

Mark
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#282
doubleu ()
Re:Reserve funds study 2007/07/17 23:54  
Mark, no question that engineering firms who do RFStudies use templates, or more accurately, data bases to determine life expectancy. As well, they build in an inflation factor and an investment return factor in determining the required costs/funding over time. Its not an exact science anymore than a doctor can provide you with a schedule of future illnesses or death but its a legal requirement so my advice is to pick a firm who have a good reputation for RFS's. Those who do RFS's don't have to be engineers by the way but from my experience, an engineering firm with an RFS track record will give you the best advice.

One of the anomalies of RFS and the use of data bases is when the firm calculates the life expectancy of,say, a private asphalt road in a condo development. The data base usually comes from municipal experience with municipal roads, which receive 100 times the traffic and wear and tear that a private road does. The result however is that the study almost always predicts a far shorter life for a private road.

A good firm should provide a draft report for the board's review, as well as up to three funding options. As well, they should be prepared to discuss and amend their forecast (either the cost or timing of the replacement) of certain components if they can't be justified. That said, don't expect the engineer to agree to wholesale changes just to lower the cost or extend the life expectancy to please the board.

Hope this helps
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#283
wotan ()
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Re:Reserve funds study 2007/07/18 01:08  
A couple of points to add to Doubleu's comments:

1) As the engineer gains experience, he/she should be able to better able to judge the life expectancy of different items. This will create a more accurate prediction of when things will be need to be replaced.

2) Sometimes it is better to fix things well before they will actually require it. Some preventative repair and replacement is always a good idea.

3) Also, as needs and situations change, it is wise for the Board to consult with the engineer and if possible have him/her update the RFS if required. For example, in one Board that I know of realized that it would be better to replace the windows before the hallways as the windows were in worse shape. They sat down with the engineer and discussed their opinion. The engineer went out, looked at the two items and the amount in the Reserve Fund, and immediately updated the RFS in order that the Board could replace the windows first.

4) If the engineer seems to be seriously underestimating or overestimating repair and replacement times, then change the engineer.
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#286
Yvon ()
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Re:Reserve funds study 2007/07/18 02:38  
Hello Jony,

I would have to refer to Roland's post earlier in this thread. He is quite correct in suggesting that it is the duty of the Board to aquaint itself with the Corporation's assets and to become familiar with the subject matter of the RFS. Too many Boards leave this most important statutory requirement solely to the attention of the "professionals". In so doing, the Board cannot possibly know whether the required amount is too high or too low.

Also, Doubleu is correct in presenting the analogy of a doctor and the knowledge he/she may have respecting the future state of one's health.

Some Boards will pressure the author of the RFS to artificially lower the monetary requirements of the Reserve Fund in order to keep the required contributions from unit Owners at a minimum.
Often, the Board is not sufficiently interested in the "assets" of the Corporation and more interested in its re-election thus permitting the RFS to be underfunded with devastating consequences to the unit Owners. Boards should also look at implementing autonomous or preventative maintenance schedules in order to maximize or extend the life expectancy of a particular asset.

Although most Directors are not engineers, they would do well to spend some time with a professional engineer or engineering student going over the content of the Reserve Fund Study.
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#288
doubleu ()
Re:Reserve funds study 2007/07/18 03:46  
If the engineer seems to be seriously underestimating or overestimating repair and replacement times, then change the engineer.

Sorry, but that option is contrary to the Act once the board have contracted with the firm to complete the study and it has presented its report.

All the board can do is to present the study to owners and their variance from it (in terms of funding), with their reasons.

This is covered in the Act here:

[i]Plan for future funding

(8) Within 120 days of receiving a reserve fund study, the board shall review it and propose a plan for the future funding of the reserve fund that the board determines will ensure that, within a prescribed period of time and in accordance with the prescribed requirements, the fund will be adequate for the purpose for which it was established. 1998, c. 19, s. 94 (8).

Copy of plan

(9) Within 15 days of proposing a plan, the board shall,

(a) send to the owners a notice containing a summary of the study, a summary of the proposed plan and a statement indicating the areas, if any, in which the proposed plan differs from the study; and

(b) send to the auditor a copy of the study, a copy of the proposed plan and a copy of the notice sent to the owners under clause (a). 1998, c. 19, s. 94 (9).
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#292
wotan ()
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Re:Reserve funds study 2007/07/18 06:29  
Sorry, seems that I am being misunderstood again. Doubleu, if Engineer A has prepared Reserve Fund Studies for a condo(let's say three of them), and has under estimated the costs of repairs and replacements each time, then yes perhaps when it is time for the next RFS, Engineer B should be hired instead. We have seen two increases over 10% to the maintenance fees to make up for under estimating by our Engineer! While the exact opposite is also not acceptable (too much money in the Reserve Fund), an engineer should have an idea of what things will cost and how bad things may be (espeically as he/she becomes more experienced.)

To take up on the doctor example, I have a family history of diabetes and stroke. A competent doctor will use this information to look into the future and try to help me reduce the risks of these two ailments (which mine luckily does.) The same thing goes for Engineers (i.e. if building built between 1970 and 1972 i nthe GTAtend to have worse balconies than expected, for example, than a prudent Engineer would expect a building built between those years in the GTA to have similar conditions.) They are trained professionals and should know what they are doing.
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#294
doubleu ()
Re:Reserve funds study 2007/07/18 15:38  
Wotan, if you had more clearly expressed your point initially, you wouldn't have been misunderstood. But now that you have, you are correct.

I once attended a seminar where a reserve fund 'specialist' (not an engineer, but a financial planner by profession) was making the claim that once he did a RFS, the cost to fund it would never change over time. He had people lining up to sign him up.

Myself and another attendee, however, challenged him on this and he finally conceded that his method of achieving this seemingly perfect scenario was to significantly overstate the funding requirements initially so that the fund built up a huge but unnecessary reserve in the beginning years. This level of contribution remained constant even through successive studies and future expenses. His argument was the same illustration as used by all financial planners; $1000 a year invested for 10 years at age 20 will be worth far more at age 50 than $2000 per year invested for 10 years at age 40.

He's right of course in that. By the way, don't worry about inflation; its all relative as any higher cost of repairs will be offset by a higher return on investments. So if you can live with grossly inflated contribution rates initially, but the 'promise' that they'll never increase over time, then its a simple solution to RFS funding requirements. It's not a plan I'd endorse but for some it was music to their ears.

At any rate, another story in the reserve fund study saga.
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#300
wotan ()
User Offline
Re:Reserve funds study 2007/07/18 20:08  
Doubleu, I assumed the te following statement would only make sense if an RFS was implemented (how else would someone know if the RFS contained anything that was under-estimated or over-estimated), and then it was time for another RFS to be performed:

If the engineer seems to be seriously underestimating or overestimating repair and replacement times, then change the engineer.

I'll try to be more clear in the future.
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#302
doubleu ()
Re:Reserve funds study 2007/07/18 20:17  
Wotan, I read your initial comments as saying that if the board didn't like the engineer's report because he was, in their opinion, overestimating or whatever, that they could simply fire him, ignore his report and hire another.

We had a couple of board members who were ready to do just that because they felt some of the estimates in the engineer's report weren't accurate so wanted to ignore the report and hire someone else who told them what they wanted to hear.
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#307
wotan ()
User Offline
Re:Reserve funds study 2007/07/19 00:13  
I see that now that you mention it. Thanks for making that clear to me. But I will try to be more clear in the future.
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#308
Yvon ()
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Re:Reserve funds study 2007/07/19 01:07  
"Those who do RFS's don't have to be engineers by the way..."
Doubleu 2007/07/17 22:54

"I once attended a seminar where a reserve fund "specialist" (not an engineer, but a financial planner by profession) was making a claim that he once did an RFS.."
Doubleu 2007/07/18 18:48

Subsection 94(6) of Ontario's Condominium Act, 1998 states;

Person conducting study - A reserve fund study shall be conducted by a person of a prescribed class who shall have no affiliation with the board or with the corporation that is contrary to the regulations made under this Act.

Subsection 32(1) of Regulation 48/01 states;

Person conducting studies - Subject to subsection (2), the following classes are prescribed as persons who may conduct a reserve fund study:

1. Members of the Appaisal Institute of Canada holding the designation of Accredited Appraiser Canadian Institute.

2. Persons who hold a certificate of practice within the meaning of the Architects Act.

3. Members of the Ontario Association of Certified Engineering Technicians and Technologists who are registered as certified engineering technologists under the Ontario Association of Certified Engineering Technicians and Technologists Act, 1998.

4. Members of the Real Estate Institute of Canada holding the designation of certified reserve planner.

5. Persons who hold a certificate of authorization within the meaning of the Professional Engineers Act.

6. Graduates of Ryerson Polytechnic University with a Bachelor of Technology (Architectural Science) - Building Science Option or Architecture Option.

7. Members of the Canadian Institute of Quantity Surveyors holding the designation of professional quantity surveyor.

8. Members of the Association of Architectural Technologists of Ontario holding the designation of architectural technologist, architecte-technologue or registered building technologist under the Association of Architectural Technologists of Ontario Act, 1996.
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#309
doubleu ()
Re:Reserve funds study 2007/07/19 03:31  
Yvon, if your post was to challenge my comment that this guy was a 'financial planner' and therefore not eligible to do RFS's, you win.

I've checked this guy again and although he's still in busines, and still doing RFS's, I was incorrect in labelling him a 'financial planner'. He's actually a Real Estate Broker and so I assume he's qualified as defined in the Regulations.

Regardless of his shingle, that's his strategy for RFS's, take it or leave it.
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#311
Yvon ()
User Offline
Re:Reserve funds study 2007/07/19 04:04  
Doubleu my friend, why the "defensive" posturing? My post was not intended to challenge your comment and there was no argument to win or lose. I was simply attempting to qualify your statement that the person conducting a RFS need not be an "engineer" and to further clarify, for the benefit of those who visit CAFCOR's Discussion Forum, exactly which persons are lawfully qualified and authorized by the Act and Regulations to conduct a RFS for a condominium Corporation in Ontario.

Here at CAFCOR, we endeavour to provide unit Owners and Corporations with as much specific and accurate information as possible. If we do not have the answer to a question, we will consult a qualified source for that answer. In this case, the Act and the Regulations.
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#322
doubleu ()
Re:Reserve funds study 2007/07/19 21:39  
Doubleu my friend, why the "defensive" posturing?

Yvon my friend, I should have stuck a smiley after my comment, as it was certainly not made 'defensively' nor did I actually think you were challenging my earlier statement. Bad choice of words on my part, in an attempt at a bit of (what some would say is weird) humour.
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#323
Yvon ()
User Offline
Re:Reserve funds study 2007/07/19 21:42  
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#344
Re:Reserve funds study 2007/07/20 07:19  
Roland wrote:
The board decides how well they would like the building maintained over the years. The Engineer, especially on esthetic items, will have no problem extending the period at which replacement would be anticipated.


I'm not sure that I agree with the notion that "the board decides how well the building will be maintained over the years."

Indeed, I'm pretty sure that the purpose of having a reserve fund is to make sure that there is always sufficient money available to maintain the common element to the existing standard, which is the standard that owners have a right to expect. If you want to improve the standard, that's a change. If you want to relax the standard, that's a change too.

The purpose of having a qualified technical practitioner do the reserve fund study is to ensure that the board has the right information to make the right decisions to maintain that standard - in a complicated, very competitive world.

As an owner, I would hope that the engineer would not be as accomodating as implied. My expectation would be that the engineer would present a fairly rigorous analysis from the outset. If he or she had as much room to "negotiate" about the timing of repairs and replacements as suggested, then I'd look for another engineer.
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#347
doubleu ()
Re:Reserve funds study 2007/07/20 13:50  
Herein lies the conundrum with reserve funds. The corporation is required to both maintain/repair assets and to replace them when they expire. Repair/maintenance, however, generally is a charge to operating funds whereas replacement is a charge to the reserve fund. Some things never wear out (a brick driveway, for example) but require period relaying....is this an operating expense or a reserve fund expense? Our engineer says that the cost to relay them is a reserve fund expense (and that expense is included in the study), provided that we aren't doing it every few years because them it is really maintenance.

Provided an asset is maintained properly and thus its life expectancy is extended, an engineer will have no problem extending the date of its replacement. At the same time, a board which doesn't maintain its assets are only shortening the time until the assets need replacement. An engineer will take also consider this in the reserve fund.
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#379
wotan ()
User Offline
Re:Reserve funds study 2007/07/22 06:16  
Of course, as Doubleu and many other members of this forum will know, the Act states that the Reserve Fund covers "major repair and replacement of the common elements and assets of the corporation." While performing a Reserve Fund Study, the Engineer should sit down and discuss the Study with the Board. During these discussions, the Engineer and the Board should try to agree on what repairs will be regarded as "major" and will not.

Those repairs/replacements that are deemed to be "major" must be included in the RFS per Section 94(1) of the Condominium Act, and those that are not should have an amount set aside each year as stated in the Operating Fund's Budget (through an item such as "Special Projects" or "Minor Rpairs and Replacements".) When these repairs/replacements are made, they are espensed to the "Special Projects" or "Minor R & R" accounts. If the amounts are over or under budget should make no effect to the overall Budget/Financial Position in the long run (surplus amounts can be invested until required to cover any deficits.)
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