A reserve fund is a savings account put in place by the condo board and contributed to by all unit holders in the condominium through their condo fees. The funds are accumulated in accordance with a reserve fund study that assesses the various common components of the structure. The common components include the exterior (roof, windows, doors and paving), systems (heating, plumbing and electrical) and the building amenities (fitness centers, social rooms and pools). The reserve fund study is conducted when the building is complete and projects when the various components of the building will require major repairs or replacement. A new reserve fund study should be done every five years to maintain accuracy of the projections.
The amount invested by each unit is based on the percentage of the building the unit owns; this is divided in various ways, some equally, some based on square feet, and some on the location in the building.
At times the reserve fund will appear to be very robust and other times to be very lean, this should not be reason for alarm as there is usually a reason behind the numbers. The condo board will save up funds for a major project, spend them on the upgrades and begin to save again for the future.
Ultimately the reserve fund is another layer of protection for the condo buyer. Imagine buying a house that came with a pre-set savings fund for future repairs as well as already having a good sum saved up. There is security in knowing that you have money in the bank for when those things come up.