🏦 The Great Reserve Fund Shuffle: A Simple Explanation – Lie No.2

When you pay your monthly condo fees, you’re paying two things in one cheque:

💡 Operating Fund – day-to-day bills (utilities, snow removal, insurance, cleaning, etc.)
🧱 Reserve Fund – savings for major repairs and replacements (roof, boilers, windows, etc.)

By law, the corporation must transfer the reserve portion into the Reserve Fund account immediately. It’s not optional, it’s not “when we have time,” and it’s certainly not “we’ll keep it in the operating account for now.”

⚖️ What the Law Actually Says

Section 93(2) of the Condominium Act, 1998 is clear:

“The corporation shall establish and maintain one or more reserve funds for the purpose of major repairs and replacements of the common elements and assets of the corporation and shall pay into the reserve fund the portion of the common expenses that is required to be included in the budget for that fund.”

Translation:

The board must transfer that money into the Reserve Fund.
It can’t be used, held back, or ‘temporarily borrowed’ for operating expenses.

💸 What They Actually Did

They said:

“We didn’t borrow from the reserve fund; we just didn’t transfer it because we had to cover operating costs.”

That’s like saying:

“I didn’t steal from my kid’s college fund – I just never put the money there because I needed to pay my bar tab.”

In accounting – and in law – that’s the same thing.
If the Reserve Fund didn’t receive the money it was owed, then the corporation effectively borrowed from it. The law doesn’t care whether you moved the cash or not; what matters is the obligation to transfer it.

🧾 Why It Matters

It’s illegal. Failing to transfer funds is a breach of the Act.
It skews your financial statements. The Reserve looks “fine” on paper while the Operating Fund runs empty.
It hides a deficit. Instead of showing a true shortfall, the board plugs the gap by withholding transfers.
It puts the corporation at risk. Auditors and the CAO can flag this as financial mismanagement.

🧠 In Short

👉 They did borrow from the Reserve Fund – they just used accounting gymnastics to hide it.
👉 It’s not clever management, it’s a breach of fiduciary duty.
👉 The correct practice is simple: Transfer the Reserve portion immediately. Every month. No excuses.

Condo Chronicles