Is Your Condo’s Reserve Fund Underfunded? What Ontario Boards Should Watch For

What does it mean for a condo reserve fund to be underfunded?

A condo reserve fund is underfunded when the money set aside for major repairs and replacements is not on track to cover the future costs identified in the corporation’s reserve fund study. In Ontario, the reserve pays for big-ticket common element work such as roofing, windows, elevators, boilers, and paving, and it is meant to be built up steadily so no single generation of owners carries the full bill.

Being underfunded rarely means the account is empty today. More often the balance looks reassuring while the long-range plan quietly falls behind, because contributions were kept artificially low or costs rose faster than the study assumed. A reserve that is 40 percent funded against its plan can still hold a healthy-looking number and yet be years behind where it should be.

For boards working with condo management in London Ontario and across Southwestern Ontario, the practical test is simple: does the current contribution schedule, plus expected investment income, keep the fund matched to the projected repair timeline in the study? If it does not, the gap gets filled later through fee spikes or a special assessment.

What are the warning signs your condo’s reserve fund is underfunded?

The clearest warning signs are a low percent-funded figure in your reserve fund study, contributions that have stayed flat for years, and repairs being deferred because “there is no money for it right now.” Any one of these deserves a closer look.

Watch for these red flags on your own statements and in board discussions:

•       A reserve fund study showing the fund below roughly 50 percent funded, or a funding line that dips toward zero in the projection years.

•       Reserve contributions that have not increased in line with inflation or the study’s recommended schedule.

•       Major projects repeatedly pushed to “next year” to protect cash flow.

•       Borrowing from the reserve for operating costs, or transferring between funds to cover shortfalls.

•       A reserve fund study that is overdue or more than three years old.

•       Surprise or repeated special assessments, which are often a symptom of a reserve that was never adequately funded.

The Condominium Authority of Ontario notes that an underfunded reserve may be unable to fully cover major repairs and replacements when they come due. Commentators at the Canadian Condominium Institute have suggested that corporations directing less than roughly 30 percent of their annual budget to the reserve may be at risk of underfunding, although the right figure always depends on the building.

The reserve fund study is the document that tells you whether you are on track, so it is worth understanding how it works. For more, read our guide: Reserve Fund Studies in Ontario Condo Boards.

What does Ontario law require for reserve funds and studies?

Ontario condo corporations are legally required to maintain a reserve fund and to base their contributions on a professional reserve fund study. This is not legal advice, but generally speaking under Ontario law, the Condominium Act 1998 and its regulations require every corporation to establish a reserve fund, conduct a reserve fund study within the first year after registration, and update that study on a regular cycle.

Under the Act and Ontario Regulation 48/01, the reserve fund study must be updated at least every three years, alternating between updates based on a site inspection and updates without one. After each study, the board must send owners a Notice of Future Funding of the Reserve Fund, showing whether the proposed contributions meet the study’s recommendations. That notice is one of the most useful documents a board has for judging whether it is keeping pace.

The study should be prepared by a qualified provider and cover a minimum thirty-year projection of major repairs and replacements. Because it only models what it can foresee, a strong board treats the study as a living plan rather than a one-time formality and asks its manager to revisit assumptions when costs move. To understand how much of your budget should be flowing into the fund, read our guide: How Much Should We Contribute to the Reserve Fund.

What should your board do if the reserve fund is falling behind?

If you suspect your reserve is underfunded, get the most recent reserve fund study and Notice of Future Funding, compare the actual contributions to the recommended schedule, and ask your management company to explain any gap in writing. A responsive manager should welcome that question.

Practical steps for a board that wants to close the gap:

•       Request a clear, side-by-side comparison of recommended versus actual reserve contributions for the last several years.

•       Confirm the reserve fund study is current and schedule the next update before it lapses.

•       Ask how reserve funds are invested, since permitted investments can add meaningful income over time.

•       Plan gradual, predictable contribution increases rather than waiting for an emergency.

•       Communicate early and honestly with owners so any increase is understood, not resented.

This is where the quality of your management company shows. A proactive manager flags a widening reserve gap years ahead, models options for the board, and helps you avoid the special assessment that catches owners off guard. If your current company only reports the balance without ever discussing whether it is enough, that is a gap worth addressing. For a fuller picture of the consequences of waiting too long, read our guide: What is a Special Assessment?

At Sapphire Condominium Management, we find that boards who review their reserve position every year, not just at study time, are the ones who never get blindsided. If you would like an outside read on where your fund stands, we offer London and Sarnia boards a second opinion on their financials at no cost through our free financial review at sapphirecondomgmt.ca/financial-review-on-us.

Frequently Asked Questions

Q: How do I know if my condo reserve fund is underfunded in Ontario?

A: Compare your reserve fund study’s recommended contributions against what your corporation actually pays in, and check the percent-funded figure. If contributions have stayed flat, the study is overdue, or repairs keep getting deferred, your fund is likely underfunded. Strong condo corp management will raise these flags before a shortfall forces a special assessment.

Q: What happens if a condo corporation’s reserve fund runs out in Ontario?

A: This is not legal advice, but generally speaking under Ontario law, if the reserve cannot cover required major repairs, the board typically must raise contributions or levy a special assessment so owners fund the shortfall directly. That is why boards working with condominium management in London Ontario are encouraged to keep the fund matched to the study every year, not only when repairs come due.

Q: How often should an Ontario condo reserve fund study be updated?

A: Ontario condo corporations must update their reserve fund study at least every three years, alternating between updates with and without a site inspection. Between updates, boards and their managers should still monitor contributions and costs. Sapphire supports condominium management in Sarnia Ontario and London with this ongoing review so nothing is left to the last minute.

Related Reading

→ Reserve Fund Studies in Ontario Condo Boards

→ How Much Should We Contribute to the Reserve Fund

→ What is a Special Assessment?