What is a provident fund?
April 11th, 2022
If you own a condominium, you may be familiar with the concept of a provident fund. Indeed, this type of fund is dedicated to expenses relating to major repairs and replacements of the common parts of a building, as opposed to their simple maintenance, for example. This type of fund should not be used to pay for current expenses. The following article will try to answer your questions about provident funds.
How to constitute an adequate contingency fund?
To build up a contingency fund that will meet realistic future needs for major repairs. The board of directors of the condominium must estimate the cost of major repairs and the replacement of common areas. Indeed, the syndicate of co-ownership has certain obligations such as obtaining a study of the contingency fund which will establish the sums necessary to hold to have enough money to pay for major repairs or the replacement of the common parts. The annual contribution of the co-owners will be based on this study. These forecasts will eventually be confirmed or invalidated at the time of the plans, specifications and calls for tenders for the works. It should be noted that the syndicate must always make this study available to its co-owners.
What is considered in establishing a provident fund?
When a provident fund study is made, several elements must be taken into account. Once again, we are only talking about major repair work and the replacement of common portions only over a 25 to 30-year horizon. If it is rather a question of corrective work that must be done immediately, it will rather be detailed in an additional study that will complete the main study.
A two-step process
The basis of a provident fund study consists of two distinct steps. The first consists of carrying out a more or less exhaustive inventory of the components of the building, including the theoretical lifespan of each of the elements. The second step is to make an economic projection which is based on the replacement values of the different components. This projection will provide an idea of the sufficient sums to be accumulated to ensure the sustainability of the building. The useful life is estimated based on the building condition certificate and its maintenance log. Certain factors can influence the lifespan such as the quality of the components, the climatic conditions, the level of maintenance, etc. The study often takes the form of a forecast table with a schedule of the work that will have to be carried out.
If you have any questions, do not hesitate to contact specialists in this type of study who can provide you with more detailed information on the stages of the analysis and what you can expect in terms of the content of the study. The building inspection specialists who offer this type of service will always be happy to answer all your questions so that you can rest easy knowing that you will have the money needed to deal with major work on your condominium.