A professional firm submitted a contingency fund study along with several contribution scenarios, including a special assessment of $8,553 per year over 10 years. A projected budget, covering some work but without any flexibility, was nevertheless presented to the general meeting of co-owners and then adopted by the board of directors. This scenario creates a gap of approximately $46,000 in the contingency fund after 10 years, almost equivalent to the proposed special assessment. Several co-owners believe that the syndicate is free to apply a budget scenario different from the one recommended by the professionals. Others point out that the bylaw regarding the contingency fund study and the maintenance logbook is not yet in effect.
Question: I wonder about the legality of this decision. Furthermore, once this by-law is in effect, will the board of directors be required to comply with the recommendations contained in the contingency fund study?
Answer: Thank you for your question, which raises technical, legal, and ethical issues.
Since the Civil Code of Quebec came into force in 1994, the legislature has required all condominium syndicates to establish a contingency fund, intended exclusively to finance major repairs and the replacement of common areas. This fund may under no circumstances be used for routine maintenance work. The purpose of this obligation is to ensure the long-term viability of the building and protect the financial interests of all co-owners.
In this regard, Article 1071 of the Civil Code of Quebec states:
"The syndicate shall establish, based on the estimated cost of major repairs and the cost of replacing the common areas, a contingency fund allocated solely to these repairs and replacements." This fund must be partially liquid, available in the short term, and its capital must be guaranteed. It is the property of the syndicate, and its use is determined by the board of directors."
Furthermore, Article 1072 of the Civil Code of Québec provides that:
"The co-owners' contribution to the contingency fund cannot be less than 5% of their contribution to common expenses."
However, it is essential to emphasize that this 5% threshold represents a legal minimum. In the vast majority of co-ownerships, this amount is largely insufficient to adequately cover future major repairs and replacements.
Bill 16 has also strengthened this obligation by making it mandatory to obtain a contingency fund study conducted by a qualified professional. This study aims to determine the amounts to be paid to ensure the fund is sufficient in the long term, taking into account the actual condition of the building and the planned work. It is precisely for this reason that the law now requires a professional study to determine realistic and appropriate contributions.
In the case you describe, the board of directors adopted a budget forecast that deviated from the recommendations of the professional study, creating a shortfall of $46,000 over 10 years. Such a decision may be deemed imprudent, or even wrongful, if it compromises the union's ability to meet its obligations. Indeed, according to article 322 of the Civil Code of Québec, directors have an obligation to act with prudence, diligence, honesty, and loyalty. Failure to heed the recommendations of a qualified professional could constitute a breach of this duty, opening the way to liability claims in the event of damages.
Furthermore, although the regulation respecting the study of the contingency fund and the maintenance logbook, published as a draft in the Gazette officielle du Québec on September 11, 2024, is not yet in force, its final adoption is imminent. Once this regulation is adopted (which is expected in 2025), unions will have three years to comply with it, making these documents mandatory as of 2028. The board of directors will then have to obtain an updated study every five years, based on the data contained in the maintenance log, and refer to it to establish the necessary contributions to the fund.
In short, even though the regulation is not yet in force, the obligation to establish a sufficient contingency fund is already imposed by law. Once the regulation is adopted, the professional study will become an essential reference tool, which the board must use to establish its financial projections. Deviating from it without serious justification could expose the syndicate—and its directors—to legal and financial consequences.
GOOD TO KNOW! The maintenance log and contingency fund study will be mandatory starting the day following the first three years of the Quebec government's regulation on the subject. If adopted in 2025 as planned, the documents will be required starting in 2028.
KEEP IN MIND: Beyond legal considerations, adequately contributing to the contingency fund also constitutes an intergenerational responsibility. It is unacceptable to bequeath to future co-owners an underfinanced and poorly maintained building. An insufficient fund inevitably leads to special assessments and a depreciation of the collective assets.
