When it comes to reserve funds, the ‘current replacement costs’ amount for common assets is an imperfect baseline, as it is rare that all components will be replaced all-at-once during the economic life of a development.
Requirements – computed as ‘current replacement requirements’ in a benchmark that relies on a best-practice component inventory – are a well-accepted shorthand for optimum contributions.
Requirements compose with historical major repair and replacement efforts, and the cumulative effects of variables that influence a reserve fund’s position.
Requirements are usually a combination of prescriptive requirements – that spell out exactly how something is to be done, and performance requirements – that outline what the required level of performance is.
In reality, it is up to an informed strata council to establish – with assistance from the reserve fund planner – the reserve fund plan and its funding strategy.
Historically, due to lack of reserve fund planning, requirements have been reactive – when a problem occurred or the building codes changed to lessen the chance that a problem reoccurred.
In British Columbia, with mandated depreciation reports and adherence to best-practice reserve fund planning, there has been a move away from prescriptive requirements and towards performance requirements.