Eligible Reserve Expenses

Eligible Reserve Expenses

In Alberta, Section 30.1(1) of the Act defines the purpose of the Capital Replacement Reserve Fund: to pay for major repairs or replacements that do not normally occur annually. Note the Act allows for repairs as well as replacements. This takes away the burden of distinguishing between a replacement and a repair. And note the Act does not allow for repairs and replacements that are of an annually occurring nature, and only major repairs and replacements. The Board may wish to define in advance those items that would be considered major; otherwise the reserve fund may or may not be used in the manner unit owners anticipate. Ideally reserve fund expenditures should be tied to the reserve study report and plan for funding the reserve fund, but this is not required by the Act.

If the corporation wishes to use the reserve fund for capital improvements, as opposed to capital replacements or repairs, it will need a special resolution of the corporation, that is the consent of 75% of the unit owners at a properly convened meeting, that is attended by persons whose total unit factors represent at least 75% of the total units. Further, there must be sufficient funding remaining after the expenditures are made. Regulation 28 exempts the corporation from the requirement for a special resolution where the capital improvement is deemed as necessary by the reserve report. In some cases, it is not possible to maintain the original material types and an improvement is necessary.

A capital improvement is simply an addition or improvement of a capital nature. It must either add something new or provide a benefit to an existing asset that did not exist originally. A fence repair that used the original material types of the fence would only be a repair, but if more durable materials were used in the repair, this would be an improvement, and if the length of the fence were extended, this would also be an improvement.

Any expense of the corporation requires a resolution of the Board. This resolution might be as simple in form as approving the financial statements.