Changes to Insurance Appraisals and Reserve Fund Studies

The government approved an Order in Council on November 26 to the Condominium Property Amendment Act Regulations subsequent to suspending the original regulation amendments on June 27, 2019. In September 2019, I was asked by Service Alberta to join in on the Stakeholders Committees for Insurance and Reserve Fund Studies for input on possible changes. For the most part, the changes announced on November 27 were well received and common sense has prevailed, particularly for administrative procedure changes that are to be implemented.

Below, I have summarized the impact and changes related to insurance appraisals and reserve fund studies that may be of interest to you.

Insurance Appraisals:

The Standard Insurable Unit Description (SIUD) that was proposed in the original amendments was kept intact in terms of dealing with the description and definition of a SIUD as well as identifying residential unit class(es). The Regulations also defined betterments and/or under improvements related to the SIUD.

The major difference noted was the reduction of the description list of the typical features in the applicable units. The list is now very similar to the Saskatchewan Condominium Regulations (which was the original documentation utilized in setting up the Alberta SIUD).

The SIUD comes into effect on January 1, 2020; however, Boards and Unit Owners will still need time to implement this regulation but DON’T PANIC!!!

If the Board has taken steps to initiate the process of completing the SIUD and should a claim arise in the interim, the system as it exists now whereby the adjusters disseminate what is the Board’s responsibility versus the Unit Owner’ will continue. 

Approval and registration of the SIUD remains similar to the original amendment in that a document will need to be filed with the registrar at Land Titles Office. It should be noted that the word “Bylaw” has now been removed from the original regulation amendment.

HOW DO YOU REGISTER THESE STANDARDS:  If the Board is in the process of amending their bylaws they can still include the SIUD as an appendage however please note that a special resolution is required in order to register it. This means that the SIUD is part of the Bylaws however if for whatever reason you need to amend or add to the SIUD a special resolution will again be required. By removing the word “Bylaw” this means that Board and owners can likely append the SIUD at a later time if they cannot complete the SIUD prior to finalizing the amended bylaws. Contact us if this is a major concern. The other option which is more flexible is to set out the SIUD by a Board Ordinary Resolution and then present it to the owners at an AGM for again an ordinary resolution approval. This provides greater flexibility should items want to be modified or added but it does now require that the SIUD is a standalone document that still needs to be registered. As you can appreciate Reliance will be processing a significant number of SIUD requests and we are dealing with these on a first come first served basis as well as priority to those Boards which have utilized our services in the past.

If you are part of a bare land the same SIUD rules apply ONLY IF the wording in your bylaw insurance section/clause indicates the Corporation is insuring not only any unit site improvements but also unit building(s) including standard interior finishes. 

With increases to insurance premiums, the SIUD becomes an important consideration to ensure that only the basic finishes are being considered. Given the clarity of the SIUD there is now a pronounced shift for Corporations to remove betterments and improvements from their bylaws given the difficulty in not only identifying these but also in providing the costing for these in their policies.

While the list of the typical features to be considered are defined in the Regulations, it will not be uncommon for the descriptions to be diverse – from brief wording to extended and detailed content. (See our video demonstrating this – To this end and based on what Boards are requesting, Reliance’s description is expanded to include additional features which we feel are very beneficial and have been well received

As I presented at the 2019 Alberta Condominium and Real Estate Conference in Calgary in early November, the appraisal estimate is a major factor in determining the insurance premium, particularly in this market, and significant variances between providers is not uncommon.  The appraisal should not only account for the SIUD but also consider the following factors:

  1. Provide accurate quantity take-offs,
  2. applying current building codes,
  3. exclusions and inclusions specifically related to condominiums,
  4.  site improvement considerations,
  5. application of multiple instead of single costing sources for veracity
  6. provide demolition estimates.

Reserve Fund Studies:

For the Reserve Funds section of the regulations, there have been limited changes from what was proposed in the original amendments. These are highlighted as follows:

  1. A list of Qualified reserve fund study providers has been extensively expanded to include the following: a professional technologist, a certified technologist as defined in the ASET Regulation (AR 282/2009) who holds a certificate of registration as a certified engineering technologist or applied science technologist, a professional engineer, a registered engineering technologist as defined in the ASET Regulation (AR 282/2009), a registered architect, a member of the Appraisal Institute of Canada with an AACI designation, member of the Canadian National Association of Real Estate Appraisers who holds the designation of Designated Reserve Planner or Designated Appraiser Commercial, a person who is a member of the Canadian Institute of Quantity Surveyors and holds a Professional Quantity Surveyor designation, a certified reserve planner who is accredited by  the Real Estate Institute of Canada, a persons who holds a certificate from the Reserve Fund Planning Program at the University of British Columbia, or an individual who has successfully completed training recognized by the Director.The Regulations also disqualifies individuals who may have a conflict of interest.
  2. The planning horizon has been left at 30 years from the originally amended Regulations and makes the planners and Boards address long-term components that in some instances were not accounted for in the previous 25-year funding horizon.
  3. The Regulations now make it a requirement to complete the following by the reserve fund study provider:
  4. conduct an on-site visual inspection of all visible components of the depreciating property,
  5. interview the members of the Board,
  6. interview, to the extent the reserve fund study provider considers necessary, the manager or managers for the Corporation, if any, any employees of the Corporation or manager, or any other person;
  7. review relevant documents, including the condominium plan, construction documents and maintenance records;
  8. In addition to the Regulations related to the provider, the Board reporting requirements are as follows:  For the annual report for each fiscal year respecting the reserve fund setting out at least the following:
  9. the amount of the reserve fund projected for the current fiscal year;
  10. total payments by ordinary or special resolutions into, and payments out of, the reserve fund for the current fiscal year;
  11. a list of the depreciating property projected to be repaired or replaced during the current fiscal year and the projected costs of the repairs and replacements.
  12. Whereas the original Regulations stated a reserve fund study had to be completed “At the conclusion of 5 years”, the new regulation state “On or before 5 years”. This provides more flexibility in understanding that a study can be conducted at any time depending on the requirements of the Board including annual updates.

Items 2, 3 and 5 are significant changes that should provide better reporting options in the reserve fund study.