Did you know that neglecting a contingency fund study and maintenance logbook can have serious consequences for your condominium? Condominium administrators and managers face financial and legal challenges due to the absence of these essential studies. This article highlights the direct consequences of this neglect and explains why it is crucial to take action now.
- Insurers require a contingency fund study
Insurance companies are increasingly requesting a contingency fund study and a maintenance logbook to renew insurance policies. Without these documents, many insurers refuse to renew the building’s coverage. This can put the condominium in a difficult situation. Finding new insurance can be costly and time-consuming, not to mention the potential increase in premiums.
Without adequate coverage, co-owners and administrators expose themselves to serious financial risks. An uncovered incident could cost thousands, even millions, of dollars. It is therefore essential to conduct a contingency fund study and keep an up-to-date maintenance log to avoid these complications.
- Banks and Mortgages: A Financial Obstacle
In addition to insurers, banks play a crucial role in real estate transactions. Increasingly, they refuse to grant new mortgages or renew existing ones if the contingency fund is insufficient. Why? Due to this insufficiency, co-owners will have to provide additional funds in the event of a special assessment.
If a contingency fund study has not been conducted, the potential buyer may require one before finalizing the purchase. This can delay or even cancel a real estate transaction. This also puts co-owners and the board of directors in a delicate position.
- Disputes and Legal Liability
Failure to conduct a contingency fund study also exposes condominium directors to legal risks. If one is not conducted, co-owners may not be financially prepared for major repairs. However, when replacing a major component (roof, windows, etc.), a co-owner may be able to claim damages for not having been notified or prepared in time.
Some co-owners may have to borrow to pay unforeseen special assessments, which generates interest costs and tensions within the condominium. By complying with legal obligations, such as Bill 16 in Quebec, the board of directors can avoid these costly and time-consuming disputes.
- Property Devaluation
Another major risk is the decline in the value of the units in the building. If the contingency fund study is not conducted or if the fund is insufficient, the new buyer can negotiate a lower purchase price.
Why? The buyer anticipates having to pay special contributions to finance short-term renovations. This directly impacts property values and can harm the overall image of the condominium.
- The Benefits of a Contingency Fund Study (in brief)
It’s important to note that a contingency fund study allows you to predict long-term costs and better plan your budget. Approximately 97% of the condominiums we studied lack funds in their contingency funds. Of these, 60% do not have enough funds to cover short-term renovations.
It is therefore vital to act now. For more information on the benefits of such a study, see our article on The Benefits of a Long-Term Contingency Fund Study.
- How to Effectively Manage Your Condominium Budget
A well-conducted contingency fund study also allows for better management of your condominium budget. To learn more, read our article on How to Effectively Manage Your Condominium Budget with a Contingency Fund Study.
Conclusion: Protect Your Condominium Now!
Failing to conduct a contingency fund study and maintain an up-to-date maintenance log can have serious consequences. Insurance denials, financing issues, disputes, and even a decline in property values. As an administrator or manager, it is your responsibility to protect the co-owners and ensure efficient building management.
Don’t let these risks compromise your building’s financial security. Fill out our online form to receive a free service offer today. Protect your condominium from the unexpected and ensure better management of your real estate assets.
