Contingency Fund Expenses in Quebec Co-ownership

In a divided co-ownership, clearly distinguishing the contingency fund from operating expenses helps avoid surprises and tensions between co-owners. This separation affects the budget, condo fees and, where necessary, special assessments.

The Civil Code of Quebec governs the contingency fund and the allocation of common expenses. Your declaration of co-ownership and annual general meeting resolutions also specify allocation thresholds and methods. Here is a practical guide to knowing “what pays for what” and documenting your decisions at the board level.

• Objective: properly fund the maintenance and long-term viability of the common portions.
• Result: a credible budget, clear minutes and a sustainable contribution plan.

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The legal and budgetary framework you need to know

• The contingency fund is used for major repairs and the replacement of common portions (see section 1071 of the Civil Code of Quebec, LégisQuébec). It must be funded according to the building’s needs, particularly in light of the EUC and the contingency fund study required under Bill 16.
• Operating expenses cover day-to-day costs: maintenance, contracts, utilities, insurance and administration (see section 1064 of the Civil Code of Quebec, LégisQuébec).
• Bill 16 requires a maintenance logbook (EUC) and intervention planning. These documents help the board of directors distinguish recurring maintenance from major work.
• The annual budget is adopted at the annual general meeting. Contributions are set by the syndicate and allocated according to the declaration of co-ownership (undivided shares). Decisions to charge an expense to the contingency fund or operations must be consistent from one year to the next and recorded in the minutes.

Useful references:

• LégisQuébec – Civil Code of Quebec, section 1071 (contingency fund)
• LégisQuébec – Civil Code of Quebec, section 1064 (common expenses)
• RBQ – Information on building maintenance and technical obligations
• RGCQ – Practical guides on Bill 16, the EUC and governance

Contingency fund: eligible expenses

As a general rule, expenses are charged to the contingency fund when they:

• concern the common portions;
• extend the useful life of an asset or replace a component at the end of its life cycle;
• are non-recurring, planned for the medium or long term and significant in scope;
• result from major code upgrades requiring a replacement or substantial rehabilitation.

Common examples:

• Major rehabilitation of the roof, building envelope (masonry, membranes and insulation) and cladding.
• Replacement of collective windows or curtain walls belonging to the common portions under the declaration of co-ownership.
• Rehabilitation of balcony slabs and guardrails if they are common portions, and replacement of underground parking membranes.
• Replacement of collective equipment: boilers, cooling towers, generators, heat exchangers, HRVs and centralized systems.
• Modernization or replacement of elevators, and major upgrading of fire alarm and security systems.
• Replacement of risers, main drains, storm drains and collectors.
• Engineering, laboratory and site-supervision fees directly related to a major repair or replacement project.
• The contingency fund study and updates to the EUC when they are expressly used to plan major repairs and replacements. Several syndicates charge these expenses to the fund; others charge them to operations. Adopt a clear policy at the annual general meeting and confirm it with your CPA.

Points to watch:

• Common portions versus private portions: follow the declaration of co-ownership. A replacement in a private portion is not a contingency fund expense.
• Losses: restoration may be handled through insurance coverage. The uncovered balance may sometimes be treated as a major project if its scope is equivalent to a substantial rehabilitation or replacement. Decide on a case-by-case basis, with professional advice.

Operating expenses: what falls under day-to-day operations

Operating expenses cover routine operations and periodic preventive maintenance:

• Janitorial services, snow removal, landscaping, waste management and recycling.
• Electricity, heating for the common portions, water, building telecommunications (e.g. intercom and monitoring) and small supplies.
• Building insurance and customary deductibles below an approved threshold when they are not related to a major rehabilitation.
• Inspections and periodic maintenance required by regulations (fire alarms, sprinklers, safety devices, elevator inspections and system testing). These are recurring operating expenses.
• Preventive maintenance listed in the maintenance logbook: lubrication, minor caulking, touch-ups, spot sealing, drain cleaning and window washing.
• Minor repairs and spot corrections that do not substantially extend an asset’s useful life or result in a significant replacement.
• Administrative professional fees: audit of the financial statements, customary legal fees, communications to co-owners and bank charges.

Tip: define a “capitalization threshold” approved at the annual general meeting. Below the threshold, charge the expense to operations; above it, assess whether it should be charged to the contingency fund if the other criteria are met.

Borderline cases: a method for making the right decision

Use these criteria, in order:

1. Nature: routine maintenance or major rehabilitation/replacement?
2. Scope: does it affect an entire component of the common portions?
3. Recurrence: one-time/exceptional or periodic?
4. Amount: does it exceed the capitalization threshold adopted at the annual general meeting?
5. Compliance: does the EUC or contingency fund study provide for this intervention?

Typical examples and recommended allocation:

Document the board of directors’ decision in the minutes and cite the criteria and references (EUC, study and declaration of co-ownership). For a significant financial matter, submit a resolution to the annual general meeting to confirm the allocation.

Governance: budget, transparency and plans

• Budgeting: align the operating budget and contingency fund contributions with the EUC and the contingency fund study. Avoid using the fund as an operating “cushion.”
• Separate accounts: maintain separate bank accounts and dedicated statements. Track major work by project.
• Allocation policy: adopt a simple grid at the annual general meeting (criteria plus threshold). Apply it consistently.
• Calls for tenders and compliance: for major work, retain licensed contractors and comply with applicable standards.
• Communication: before a major project begins, explain the financing (contingency fund, special assessment or syndicate loan) and the impact on common expenses. Publish a clear summary in the minutes.

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FAQ

Can the contingency fund be used to cover an operating deficit?

No. The contingency fund is reserved for major repairs and replacements of common portions. An operating deficit is addressed through a budget adjustment or an approved special assessment.

What should we do if the fund is insufficient for an urgent project?

Several options are available: a special assessment, spreading the cost through a syndicate loan or phasing the work. Rely on the contingency fund study and clearly present the plan and its impact on contributions at the annual general meeting.

Who decides how an expense is allocated?

The board of directors applies the declaration of co-ownership, adopted policies and the criteria above. For sensitive cases, have the decision reviewed by a CPA and, if necessary, submit a resolution to the annual general meeting to confirm the approach.

References and resources:

• Civil Code of Quebec – C.C.Q. (section 1071, contingency fund)
• Civil Code of Quebec – C.C.Q. (section 1064, common expenses)
• RBQ – Building maintenance and technical obligations
• RGCQ – Bill 16 files and best practices

This article provides general information and does not constitute legal advice. Consult a lawyer or notary for your situation.

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