Sunday March 8 2026

CONTINGENCY FUND: WHY THE AUDITOR MUST INTERVENE TO PROTECT THE POTENTIAL BUYER

Picture this: you are buying a condo. According to the certificate you received from the condominium syndicate, the syndicate’s financial statements show a contingency fund that is in line with what is provided for in the contingency fund study. Everything seems fine.

But some major work has been delayed by the syndicate, and the costs have never been reintegrated into the minimum balance required for the contingency fund, even though the current study balance considers that this planned work has been completed.  Which is completely false!

The result? You could underestimate your future contributions or special assessments.

THE SYNDICATE’S CERTIFICATION: A FORMALITY… BUT A LIMITED ONE

In the province of Quebec, the syndicate must complete an annual certification for the contingency fund, indicating:

• The total amount of the fund.
• The amount recommended by the study for the beginning of the year.

In practice, some management firms simply report the figures from the study without adjusting the recommended balance to consider delayed or uncompleted work.

Their reasoning: “it’s not our responsibility” since the question asked by the Regulation does not require us to do so. On paper, everything is correct. But in reality, and for the potential buyer, the information is incomplete.

THE ROLE OF REVIEWED OR AUDITED FINANCIAL STATEMENTS

In Quebec, the annual financial statements of a condominium syndicate must provide co-owners and potential buyers with a true and fair view of the building’s financial situation. Among the key information, the contingency fund plays a central role, as it reflects the syndicate’s ability to finance major maintenance and repair work on the building.

Since July 2025, with the coming into force of «Regulation PL-16 implementing sections of the Civil Code of Québec resulting from the condominium reform brought about by Bill 16 (PL-16), we can expect to see a particularly important note to this effect in the financial statements. Unfortunately, this practice is currently slow to emerge.

THE KEY ROLE OF THE AUDITOR

This is where the auditor or external accountant becomes indispensable. Even if the contingency fund deficit does not constitute a liability to a third party, it remains relevant financial information, since the syndicate will have to finance this work in the foreseeable future. Failure to report this could lead to an underestimation of future cash requirements and potentially mislead a buyer.

By adding an explanatory note on the contingency fund adjusted for work not performed, the auditor can, in particular:

• clarify the actual deficit in the fund in relation to the study’s recommendations;
• explain delayed work and its estimated costs;
• help co-owners and buyers understand the potential impact on future contributions or possible special assessments.

As an independent third party, the auditor is responsible for ensuring that the financial statements present complete and relevant information for users. Adding such a note therefore helps to enhance the transparency and credibility of the financial statements.

Without this information, neither the syndicate nor the potential buyer has a complete picture of the building’s financial situation, which can lead to decisions based on incomplete information.

WHAT IF THE SYNDICATE DOES NOT HAVE REVIEWED OR AUDITED FINANCIAL STATEMENTS?

In this case, it becomes even more important to act with caution and include this information directly in the syndicate’s certification.  This is why we do it this way for our clients at SolutionCondo.  Here is an example of the wording we use for our certifications.

2.2. Amount available in the contingency fund at the beginning of the current year recommended by the contingency fund study

According to the most recent contingency fund study, attached as an appendix, and based on the various financing scenarios proposed by the professional who conducted the study, the minimum amount that must be available in the contingency fund is $XXX at 2026-01-01.

It should be noted that the prospective buyer and their broker must carefully assess the potential impact on condo fees of the syndicate’s decision to contribute to its contingency fund according to the scenario proposed on page 48.

However, several projects have had to be delayed, and therefore costs of Σ $YYY will have to be added to the minimum balance of the contingency fund for the following projects:

• • • • • • • delayed item #1 – amount $YYY
            • delayed item #2 – amount $YYY

We therefore consider that the contingency fund should be at least $ZZZ* (i.e., XXX + Σ $YYY) as of January 1, 2026.

* Considering inflation and other factors that could affect the costs of completing these delayed works, please note that the future costs incurred may differ from those indicated in the contingency fund study and used above to adjust the minimum balance.

CONCLUSION

Regardless of how this information is presented, one thing is essential: the prospective buyer must be informed of the shortfall in the contingency fund.

A prudent syndicate will add the required information to its certificate on its own initiative to avoid criticism.

However, we believe that the auditor should also do so as an independent professional, failing which the issue of professional liability could potentially arise.

In a context where major work on a building can cost hundreds of thousands or even millions of dollars, transparency about the actual state of the contingency fund is not an accounting detail: it is essential information for any informed purchase decision.

Elise Beauchesne, CPA, Adm.A
President and Founding partner