THE CRF - WHAT IS IT, AND WHEN MAY IT BE USED?

What property managers and strata owners often refer to as the CRF is actually the contingency reserve fund. To meet its expenses, every strata corporation, regardless of its size, must have a CRF. The owners contribute to the CRF by means of strata fees. The Strata Property Act defines the CRF as:

… a fund for common expenses that usually occur less often than once per year or that do not usually occur...

A strata corporation determines the amount of its annual contribution to the CRF by reference to the Regulations to the Act. A strata corporation must accrue funds in the CRF until the amount in the CRF, at the end of any fiscal year, equals at least 25% of the operating fund for the fiscal year that just ended. If the CRF is not 25% as required, the strata corporation must then accrue funds to the CRF at the rate of 10% of the total contribution to the operating fund for the current fiscal year every year until the 25% minimum is achieved.

If the amount in the CRF at the end of a fiscal year is equal to or greater than 25% of the contributions to the operating fund for the fiscal year that just ended, then the owners may contribute any amount to the CRF.

A word of caution. A strata corporation may want to exceed the minimum, but how far may it go? The Regulations to the Act tell us that at the end of any fiscal year, if the amount of money in the CRF is equal to or greater than the operating fund for the fiscal year that just ended. In other words, if the CRF is 100% or more of the previous year’s operating fund, then any additional contributions to the CRF must be approved by a resolution of the owners passed by a 3/4 vote at a general meeting.

A strata corporation must account for money in the CRF separately from other monies. The Act requires a strata corporation to invest the CRF and there is a specific Regulation that stipulates what investments are acceptable for these funds and which investments are not. Any interest earned on the CRF remains part of the CRF.

From time to time, strata corporations look upon the CRF as a vast resource upon which they can draw as needed. The fact is that the owners may only spend from the CRF if the expenditure (a) is consistent with the definition of CRF as above; and (b) is first approved by a resolution passed by a 3/4 vote of the owners at a general meeting.

Often times councils declare an emergency to permit an expense to be paid from the CRF. While expenditure from the CRF is permitted in an emergency, the Act defines emergency as:

… reasonable grounds to believe that an immediate expenditure is necessary to ensure safety or prevent significant loss or damage, whether physical or otherwise.

At other times, councils who find their strata corporation in a "cash crunch" may think about borrowing from the CRF to pay operating expenses. But borrowing from the CRF is only allowed in extremely narrow circumstances. To borrow from the CRF, a strata corporation (1) must repay the loan at the end of that fiscal year; and (2) the loan must only be used to cover temporary shortages in the operating fund that result from expenses coming due before the budgeted monthly contributions to the operating fund have been collected from the owners to cover these expenses. So, for example, if the fiscal year end of a strata corporation is December and in July, the full amount of the strata corporation’s insurance policy premium is due, a strata corporation may borrow the monies from the CRF to meet that premium payment. One further stipulation, the strata corporation must advise the owners as soon as feasible of the amount and purpose of the loan.

The CRF is earmarked for only certain types of common expenses. The amount that a strata corporation may amass in its CRF is controlled by legislation and the CRF is not a pool of funds to be tapped into by the owners for just any purpose. Without first obtaining a 3/4 vote of the owners, the council must determine that there is an emergency in order to use the CRF. If a strata corporation wants to loan funds to the operating fund from the CRF, the conditions for doing so are quite limited.

Bonnie Elster, Clark Wilson Law Firm