The contingency fund constitutes first and foremost a prevention tool. The desire to incite co-owners to anticipate the completion of important work is not news. Prior to the entry into effect of the Civil Code of Québec in 1994, it was a frequent occurrence for a co-ownership (condominium) to have a reserve fund even though the Civil Code of Lower Canada was silent on this question; the majority of declarations of co-ownership contained provisions on the reserve fund and it was frequently mentioned that the budget of the co-ownership had to have a reserve fund destined to the accumulation of reserves for the major but not imminent expenses but foreseeable in the more distant future. However, the reserve fund was insufficient most of the time due to the low contributions made to it.
Objective
With the adoption of the Civil Code of Québec in 1994, the legislator introduced the obligation for every syndicate of co-owners to have a contingency fund based on the estimated cost of major repairs as well as the cost of replacement of the common portions; this obligation was intended to fill a gap in the previous law and to establish forced savings allowing to finance in advance certain work to be done in the common portions. Long-term planning of the important work to be carried out within a co-ownership allows thus large expenses to be paid over time by collecting funds each month and so, the co-ownership will build up a fund that will finance entirely or partially the necessary work needing to be done.
Obligation
The law not providing any exception, the contingency fund is mandatory in all divided co-ownerships; the fact for a syndicate to set up a contingency fund constitutes an obligation of public order of direction since it concerns the collective protection of the co-owners against a failing administration. It should also be noted that the sums accumulated in the contingency fund belong to the syndicate and they're not refundable.
Role of the board of directors
The board of directors exercises executive powers and its prerogatives are fixed by the law as well as the the constituting act of the co-ownership; responsible of the preservation of the immovable, it must prepare the forecast annual budget of the co-ownership. In doing so, the directors will determine the amount of the common expenses (condo fees) to be paid by the co-owners without forgetting the amounts to be provisioned in the contingency fund; to that end, based on the recommendations made in the contingency fund study, they must fix the annual contribution of the co-owners to this fund and so, after consultation with the meeting of co-owners. Furthermore, section 1071 of the Civil Code of Québec mentions that the use of the contingency fund is determined by the board of directors.
Liability of the members of the board of directors
Failure to establish a contingency fund, to establish one that's clearly insufficient or to use the accumulated sums for other purposes would constitute a fault on the part of the directors; thus, they could incur their civil liability towards the syndicate and the co-owners.
WHAT YOU SHOULD KNOW! The contingency fund can't be seized following a judgment rendered against the syndicate unless the decision concerns a debt arising from the repair of the immovable or the replacement of the common portions.
WHAT TO KEEP IN MIND: To avoid confusion between the amounts paid into the general administration fund which is for day-to-day operations, those paid into the self-insurance fund as well as those paid into the contingency fund, a separate bank account should be opened for each fund.
WARNING! The contingency fund of a co-ownership is very often insufficient due to minimal contributions from the co-owners and/or its inappropriate use by the directors.
