Investing Your Reserves

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Please note that this post is outdated, but still contains useful information. An important update to this post can be found here as the Regulations referred to below have been amended.

We have previously written on the amendments to the Strata Property Act requiring all strata corporations to obtain a Depreciation Report by December 2013.

If you live in a strata corporation which has obtained a Depreciation Report already, you’re no doubt familiar with the various funding scenarios they present.  At least one of those scenarios will involve a very substantial increase in the amount of money your strata corporation puts away into the Contingency Reserve Fund (CRF).  Depending on the size of the strata corporation, there could be millions of dollars put away over the 30 year time horizon to fund capital renewals of expensive common elements such as windows, walls, mechanical equipment and waterproofing.  This money will get put away gradually over time, again depending on the nuances of the scenario itself, and accrue interest at a given rate.  Strata Corporations also have the advantage of being able to invest money tax free, because they are ‘not for profit’.  So, money invested by your Strata Corporation is not taxed when in a Strata account (while it would be if each individual owner invested the money on their own and then pooled it later on via a special levy).

We are currently in an era of unprecedentedly low interest rates at savings institutions in Canada, and this could continue for some time.  Increasingly, Strata Councils are asking what they can do with the money in their CRF beyond the typical savings account.

For the answer to this, we turn to the Strata Property Act, specifically Section 95 which reads:

Management of contingency reserve fund

95  (1) The strata corporation must account for money in the contingency reserve fund separately from other money of the strata corporation.

(2) The strata corporation must invest all of the money in the contingency reserve fund in one or the other or a combination of the following:

(a) those investments permitted by the regulations;

(b) insured accounts with savings institutions in British Columbia.

(3) Any interest or income earned on the money in the contingency reserve fund becomes part of the fund.

The relevant Regulations can be found here. Rather than quoting all of the approved investment vehicles, we’ll simply say that there is a long list and it is complicated for the average lay person to know what is what.  It is also possible that your Strata Corporation has specific Bylaws which govern the types of investments that can be utilized, if any at all.  Keep in mind that the Act supersedes your Strata Corporation’s Bylaws (ie. You cannot Bylaw out of the Act and create an allowable class of investments which are not allowable under the Act).  Finally, the management of strata corporation money is also governed by the Real Estate Services Act (RESA) which has a complicated set of rules pertaining to reporting and transparency, and these rules also need to be adhered to when deciding on an appropriate investment vehicle.

When talking about managing these investments, it’s important to note that we at Stratawest do not have the expertise or knowledge to advise you on appropriate investment vehicles.  Moreover, we’re bound by our licensed obligations not to give advice on matters we are not trained on (this goes for legal, engineering and other specialized skill sets as well).  A council considering an uncertain investment move would be well advised to seek professional advice from a licensed and skilled investment advisor, even if it means paying a fee, given the amount of money potentially on the line. Your Strata Corporation does have access to investment advisors at the financial institution you bank with, who may be able to help.  You may also require legal assistance in the event that you wish to investigate options not covered under the Regulations or Act.