Une étude qui confirme les appréhensions

March 13, 2022 — A study on the contingency fund was recently conducted by the Canadian Institute of Actuaries. This study confirmed a long-standing concern: the lack of discipline among many co-ownership syndicates often results in contingency funds being underfunded or insufficient. It stated the following:

“Unfortunately, to this day, the initial amounts accumulated in the contingency fund—based on the minimum contributions allowed under the law—are insufficient to ensure a reasonably uniform amortization of costs over time. As expected by informed individuals, this results in either increased co-ownership fees or insufficient funds for repairs and replacements of common portions.”

Legislative reform

To establish an adequate contingency fund, the board of directors must estimate the cost of major repairs and replacements of common areas. Bill 16 amended the Civil Code of Quebec, imposing additional obligations on co-ownership syndicates, including the requirement to obtain a contingency fund study that determines the amounts necessary to adequately fund this reserve to cover the cost of major repairs or replacements of common areas. This study must be made available to co-owners.

Article 1071 of the Civil Code of Quebec was amended in December 2019 through Bill 16. It now includes a new provision stipulating:

“Every five years, the board of directors shall obtain a contingency fund study that determines the amounts necessary to adequately cover the estimated cost of major repairs and replacements of common areas. This study must be carried out in accordance with the standards set by a government regulation, which designates the professional orders whose members are authorized to conduct such studies.”

It is up to government regulation to define the format, content, and procedures for preparing and revising the contingency fund study, as well as the professionals authorized to conduct it.

A Reform Delayed

The above-described changes have not yet come into effect. Their implementation will follow these timelines:

• For co-ownerships established before January 10, 2020, no later than three (3) years after the first regulation under the relevant provision of the Civil Code of Quebec comes into force. If this regulation is adopted as planned in 2022, the requirement for this study will begin in 2025.
• For co-ownerships established after January 10, 2020, these obligations take effect upon the entry into force of the first regulation under the relevant provision of the Civil Code of Quebec.

An Uncertain Future

Many observers fear that the three-year delay for requiring a contingency fund study and the ten-year period to capitalize the necessary amounts (so that the contingency fund is adequately funded) could further weaken the financial stability of co-ownerships. Such concerns might lead to a loss of confidence among buyers in this collective housing model.

Montreal, March 13, 2022

Condolegal