In today's rapidly maturing condominium marketplace, purchasers of either resale or conversion homes become quickly sensitized to the growing importance of an adequate "replacement reserve".

Lenders and CMHC as the primary mortgage insurer pay special attention to this important value factor when assessing investment security. Marketing agents of properties with healthy funds also recognize the competitive edge it offers vendors they represent.

A reserve fund is an accumulation of cash — held in secure, fairly liquid investments — to provide for the eventual repair and replacement of major parts of the common property. It may also serve as a funding source for other large expenditures (e.g. substantial legal fees) not typically covered by the general operating budget.

The condominium community creates a reserve by setting aside a small amount each month. This savings deposit is normally made as part of every unit owner's regular contribution to the operating budget (all of which is colloquially termed the "condo fee").

These funds are for items not occurring annually. Obviously, without a fund, raising enough cash for major repairs (e.g., re-roofing or re-siding) might prove an onerous, if not impossible, task. Since condominium corporations have few other assets, they generally are unable to borrow large sums. With a reasonable reserve, owners can take comfort in the knowledge they have some contingency protection when that inevitable "rainy day" arrives.

Common property components normally covered by the replacement reserve fund are:

a) all roadway and underground services

b) foundations, walls , roofs, stairway & hallway finishing

c) all major mechanical, plumbing, & electrical equipment

d) recreational facilities.

While the common property is directly owned by the unit owners in proportion to their co-ownership factors, the reserve fund is an asset of the condominium corporation.

Because it exists to protect the shared investment of both current and future owners, condominium statutes typically direct that the reserve cash value is neither adjusted nor reimbursed when the unit is sold. However, since it forms an important part of the value package that subsequent owners buy, vendors should receive its added value as part of an enhanced purchase price.