Since April 15, 2022, the creation of a self-insurance fund for condominiums has become mandatory, in accordance with legislation adopted in June 2018. This fund aims to ensure sound financial management and protect condominium owners against unforeseen events. It is crucial to ensure the financial sustainability of the condominium and avoid unexpected charges.
Here are the key points you need to know about this self-insurance fund.
What is the self-insurance fund?
A self-insurance fund is to be established for divided condominiums to address the often insufficient financial management of certain condominium syndicates and their insurance deductible amounts. In some cases, the deductible can reach tens of thousands of dollars, depending on the building and the type of damage. This represents a significant, unexpected expense.
The self-insurance fund helps by creating an essential monetary reserve for potential disasters. It must be liquid and readily accessible so the syndicate can respond quickly. Proper planning of this fund reduces the need for special assessments to cover any liquidity shortfalls.
What is the purpose of the self-insurance fund?
The purpose of the self-insurance fund is to cover various deductibles that a condominium must pay following a disaster. These deductibles may relate to the building’s insurance, the syndicate’s liability insurance, and the insurance covering the members and directors of the board.
In addition to covering deductible amounts, the fund can be used to repair property damage that the syndicate has insurable interest in, such as the cost of rehabilitation work not covered by the insurer. However, this should only be done when the contigency fund of insurance compensation is insufficient, due to underinsurance, coverage limits, or exclusions.
The self-insurance fund must not be used for routine maintenance or ongoing administrative expenses. Its primary purpose is to cover disaster-related expenses and prevent the need for special assessments from co-owners.
How much should be set aside for the self-insurance fund?
The amount to be set aside for the self-insurance fund is determined by the deductible the condominium must pay in the event of a disaster. It may also include additional reasonable amount to cover other potential expenses.
The capital funded by the co-owners should equal the highest deductible amount all the insurance coverages subscribed by the syndicate. However, deductibles for earthquakes and floods are excluded from the calculation, even if these protections are included in the building’s insurance policy.
What is the minimum contribution of the co-owners to the self-insurance fund?
The minimum contribution of the co-owners to the self-insurance fund is determined annually by the board of directors during the adoption of the condominium’s budget. The board must assess the required contribution based on the conditions set out by law, which are as follows:
- If the capital of the self-insurance fund is less than or equal to half of the highest deductible: the contribution must be equal to half of that deductible. For example, if the highest deductible is $40,000, the co-owners must collectively contribute $20,000.
- If the capital of the fun exceeds half of the highest deductible: the contribution must cover the difference between the deductible amount already accumulated in the fun. For examples, if the deductible is $40,000 and the fund already had $25,000, the contribution would be $15,000.
- If the capital of the self-insurance fund is greater than or equal to the highest deductible: no contribution is required.
Can part of the contingency fund money be used to establish the self-insurance fund?
The contigency fund is a mandatory monetary reserve that the condominium must establish with contributions from the co-owners to cover future repairs or replacements of the common areas of the building. Given that this fund already incurs cost for the co-owners, it is reasonable to question whether part of the accumulated capital can be used to create the self-insurance fund.
However, it is important to note that the contingency fund money can only be used for repairs or replacements of the common areas. Therefore, it cannot be used to finance the self-insurance fund.
To prevent confusion between the contingency fund, self-insurance fund, and other expenses, a separate bank account should be open for each fund in the syndicate’s name.
Are the amounts accumulated for the self-insurance fund refundable upon sale?
The amounts accumulated in the self-insurance fund belong to the syndicates and are not refundable to co-owners who sell their private units.
Additionally, the self-insurance fund cannot be seized by a creditor if they obtain a judgment against the syndicate, unless the judgment is specifically related to the collection of the amount associated with the fund.
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