Contingency fund study (transitional measures and entry into force)

The new provisions introduced by Bill 16 will bring about many changes regarding the contingency fund in a co-ownership. It will be mandatory to obtain a contingency fund study, which will establish the necessary amounts so that the fund is sufficient to cover the estimated cost of major repairs and replacement of the common elements (art. 1071 of the Civil Code of Quebec). The miminal content of this study and the professionals who will be able to carry it out will be determined in a future government regulation soon to be published. Such study will have to be obtained every five years by the board of directors, which will have to determine the amounts to be paid into this fund, according to the recommendations made in this study.

Amendments to the Civil Code

Article 1072 of the Civil Code of Quebec has been amended to remove the minimum percentage of contribution (annual) of co-owners to the contingency fund. However, this mandatory contribution to the contingency fund is not abolished. This has been placed in article 1071 of the Civil Code of Quebec, which establishes the obligation to contingency fund study; the article now states that the amounts to be paid "are fixed on the basis of the recommendations made in the study of the contingency fund and taking into account the evolution of the co-ownership, in particular the amounts available to the contingency fund". Article 1070 of the  Civil Code of Quebec has also been amended to provide that  the register of co-ownership must include the maintenance logbook, the contingency fund study and all other documents and information relating to the immovable and the syndicate or provided for by government regulation. Although these amendments are likely to be in force in the near future, this will only happen after the government regulations are published and in force.

Implementing Regulation and transitional measures

Transitional measures have been provided for in Bill 16. These provisions will come into force by regulation of the Government of Quebec. The government will determine the form, content and procedures for conducting and reviewing the contingency fund study, as well as the professionals who are authorized to conduct the study. Bill 16 provides for a transitional period (clauses 149 to 157 of Bill 16) in the implementation of these new obligations.

Conducting the contingency fund study

1. For the vast majority of co-ownerships, i.e. those where the special transitional meeting was held more than 30 days before the coming into force of the by-law, the contingency fund study must be obtained no later than  the day following the 3rd anniversary of the  coming into force of the government regulation (art.  151 of Bill 16).
2. For newly constituted co-ownerships, i.e. those where the special transitional meeting of a syndicate is held within the period beginning 30 days before the coming into force of the by-law and ending 90 days thereafter,  the developer shall provide the  contingency fund study to the syndicate no later than 6 months before the special transition meeting (s. 156 of Bill 16).
3. The syndicate must make the contingency fund study available within 60 days of its receipt, which means that this study must be filed with the register of co-ownership. In addition, when a meeting of co-owners is held within 60 days of obtaining this study by the syndicate, the latter must give it to the co-owners before the meeting (art. 152 of Bill 16).
4. From now on, it is up to the developer  to request (article 1071  of the Civil Code of Québec) the first study of the contingency fund, and as long as he does not do so, the sums to be paid by the co-owners to this fund must correspond to 0.5%  of the reconstruction cost of  the immovable (sections 39, 65 and 165 (5) and (8) of Bill 16).  In addition, the latter is liable for the damage resulting from his failure to provide the contingency fund study.

Capitalization of the contingency fund

1. Between the coming into force of the new article 1071 of the Civil Code of Quebec and the obtaining of the first contingency fund study, the contributions of the co-owners to the contingency fund are at least 5% of the contributions to common expenses;
2. The board of directors will fix the contributions of co-owners to the contingency fund on the basis of the study within 30 days of the first annual meeting following the obtaining of this study (Article 153 of Bill 16);
3. If the study obtained shows that the accumulated contingency fund is insufficient to cover the estimated cost of major repairs and replacement of the common portions, the board of directors will be required to set the contributions of the co-owners in this fund so that the accumulated sums are sufficient after a period of not more than 10 years from the date of obtaining the first study (section 154 of Bill 16).

Study Update

Even if the contingency fund study was produced according to the rules of the art, there may nevertheless be imponderables. Certain events could distort the data, for example if a component deteriorates prematurely, or in the event of a disaster or economic fluctuations (e.g. an increased inflation rate that would skyrocket the cost of the work to be done). This study should therefore be re-evaluated periodically. According to the amendments made to article 1071 of the Civil Code of Quebec by Bill 16, the board of directors must obtain a contingency fund study, at least, every five years. This new study will, in fact, be an update of the previous one.

WHAT YOU SHOULD KNOW ! Bill 16 provides for recognition of equivalence for maintenance logbooks and contingency fund studies obtained in the two years preceding the adoption of the regulation. It is possible that contingency fund studies produced by a professional engineer, architect or professional technologist will be recognized as equivalency, but only the regulations to be published can provide certainty in this regard (art. 151 para. 2 of Bill 16).

WHAT TO KEEP IN MIND : ​The co-ownerships, having had their extraordinary transition meeting before the 30 days preceding the entry into force of the regulation (i.e. the vast majority of Quebec), will have a period of three (3) years to obtain the study of the contingency fund and the maintenance log.

WARNING ! ​Nothing is provided in Bill 16 for co-ownerships that do not have a developer or those whose developer retains control of the syndicate for a very long period of time. It should be remembered that in these particular cases, there is no special transitional meeting or, in the second case, it can be held only after a few years.

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