Scotwick Realty Services Inc. v. The Owners: Condominium Plan No. 7510479

A condominium corporation can properly pay for unexpected repairs out of the reserve fund.’,’In accordance with Alberta’s Condominium Property Act, the Condominium Corporation commissioned a Reserve Fund study and set up a Reserve Fund plan in the year 2000. It then became apparent that certain repairs would be accelerated and would exceed the amounts anticipated in the plan. The board decided to deal with these unexpected expenditures by imposing a special levy and also by depleting the reserve fund below levels contemplated by the plan.

Certain owners argued that the board did not have authority to take these steps. They said that the unexpected expenditures constituted “capital improvements” and that the reserve fund accordingly could not be used to cover those expenditures without a special resolution of the owners, and only if the fund contained a “surplus”, beyond the levels contemplated by the plan.

The court said:

• An unexpected repair expenditure is not a capital improvement;
• “Preparing a reserve fund plan that projects many years into the future is always going to be a bit of a guessing game. The exact timing of the expenditure and the exact quantum of the expenditure will always be an estimate only.”;
• “In my view, the condominium corporation can spend the reserve fund on major repairs, even if they were completely unexpected and unanticipated.”;
• “Expenditures of this nature from the fund are in the hands of the board.”;
• “This will, in many cases, put the fund in a deficit position, particularly when the expenditures are of a magnitude being experienced in this case.”;
• “The only conclusion that I can reach is that a board confronted with an unexpected expenditure then has a duty to revisit the reserve fund plan and make any necessary adjustments to the reserve fund levy to accommodate this unexpected expenditure. In some cases, a whole new reserve fund study might be needed. In other cases, the board might simply wait for the 5-year anniversary of the reserve fund study, at which time the act requires a new study in any event.” [In Alberta, Reserve Fund Studies must be updated at least every 5 years.] “In other cases, the board could make a special levy, as was done in this case. The board is also at liberty to fund such expenditures from its general operating account. The board could also increase the reserve fund levy so that the reserve fund will be back on track. In most cases, the board will probably use a combination of these techniques.”
• The requirements of the condominium corporation to obtain a reserve fund study every 5 years is a minimum requirement only. The board may choose to arrange a new study before the 5 years have passed. “Therefore, I conclude that the 5-year time limit is merely an outside deadline. It does not relieve the condominium board of the responsibility of reviewing the reserve fund within the 5-year period.” Depending upon the circumstances, the board may well choose to arrange for an earlier reserve fund study.

Editorial Comment:
I found it gratifying to read this decision. I find Justice Slatter’s reasoning to be absolutely sound. It is good to see that our courts can form this level of understanding even after a relatively brief exposure to condominium law.