Condominium corporations constantly face the challenge of budgeting for capital expenditures and building upgrades. With costs rising, despite the decline in Canada’s annual inflation rate from 6.8% in 2022 to 3.62% in 2023, the construction industry remains particularly hard-hit by ongoing disruptions in the global labour force and supply chains. As we move through 2024, these issues still linger, affecting material and labour costs.

Many property managers and consultants have noted that while cost increases are usual, the rapid growth since 2022 is unusual, with construction costs rising by 40% to 60%. Given this uncertainty, how can condominium corporations create strong budgets that address these challenges and enhance property values?

Let’s explore three key areas: Reserve Fund Studies, Building Audits, and Building Upgrades.

Reserve Fund Studies

Most property managers and Boards of Directors (BODs) know that the Condominium Act in Ontario requires Reserve Fund Studies to be conducted within the first year of the corporation’s registration, with updates required every three years. These studies help ensure that funds collected by owners will cover the expected costs of major capital projects. However, many corporations have found that their Reserve Fund Studies are often underfunded compared to real project costs. Here are some reasons why:

Delayed Maintenance

It’s not uncommon for corporations to postpone repair or replacement work to reduce expenses in a given year. But, pushing tasks down the road typically results in higher costs. Corporations often end up paying significantly more for the same work when it’s delayed.

Solution: Stick to the plan outlined in the Reserve Fund Study and execute replacements as scheduled. This helps prevent cost increases that occur when projects are delayed.

Financial Mismanagement

Poor planning can leave corporations unable to gather the necessary funds for major projects, forcing them to rely on special assessments or other measures. This is often due to underestimating the costs of aging infrastructure.

Solution: Ensure that Reserve Fund Studies are prepared by skilled professionals. Multi-disciplinary consulting engineering teams will provide more accurate cost estimates.

Poor Construction Quality

The lack of skilled labor, inadequate oversight, and the use of now-disapproved construction materials have led to premature replacements and upgrades. Corporations are forced to tackle these expensive projects earlier than expected.

Solution: During the early stages of a corporation, performance audits can catch construction deficiencies. These audits are critical to identifying problems while warranties are still in place, saving corporations from future costs.

Building Audits

While Reserve Fund Studies provide a long-term financial outlook, corporations can further strengthen their budgets through Building Audits. These audits offer a shorter-term (5 to 10 years) review of building systems and often reveal opportunities to increase efficiency and reduce operational costs.

For example, instead of simply budgeting for the replacement of two atmospheric boilers with two more of the same (as done in a reserve fund study), a Building Audit would suggest upgrading to higher-efficiency condensing boilers. This option may have a higher upfront cost, but can lead to significant savings in the long run by reducing energy consumption.

Tip: When conducting audits, ask your consultant to provide cost estimates and payback periods for upgrades. This helps ensure that the decisions made will have a positive financial impact over time.

Building Upgrades – Timing & Execution

As buildings age, their equipment, systems, and infrastructure inevitably wear out. The American Society of Heating, Refrigerating and Air-Conditioning Engineers (ASHRAE) provides a useful guide to the expected life span of various building equipment. However, ongoing equipment maintenance and original equipment installation play a critical role in determining the longevity of equipment.

What to Ask:

When planning an upgrade, BODs and property managers should ask the following questions:

1. Is the new equipment more efficient than the old?
2. Will it improve the system’s overall longevity?
3. Will it lower future operating costs?

Take the boiler example again. While installing another atmospheric boiler might seem like the easiest and most economical option, opting for a higher-efficiency condensing boiler would reduce future gas consumption and lower operating costs if designed correctly.

Ultimately, corporations must plan upgrades carefully and work closely with consultants to ensure that each new system benefits the building in the long run without negatively impacting other systems. Upgrading at the right time, with the right approach, ensures not only cost savings but also increases the value of the property.

In today’s unpredictable economic climate, crafting resilient budgets and elevating property values is challenging. It requires a dedicated team of professionals, from property managers and the Board of Directors to consultants who understand the complexities of building systems and financial planning.

Have you had similar challenges with your Reserve Fund Study or Building Upgrades? What strategies worked best for your team? Share your experiences and tips in the comments below! Let’s continue the conversation and build stronger, more resilient communities.