Recently, there was a news story about a local condo owner who needed to pay $40,000 to her condo corporation to replace windows in her building. You can read the story here: https://toronto.ctvnews.ca/toronto-condo-owner-facing-40-000-bill-for-new-windows-1.6998186 There are several topics in this story worth delving into, starting with the basics of condo ownership.
When purchasing a condo unit, not only do you have to consider the condition, layout, finishes, and price of the actual unit, but how the building’s finances are managed is also equally if not more important. While the property management company manages the day-to-day operations of the building, a board of directors administers many of the financial matters for the building. Major decisions are typically decided upon by voting by the unit owners. You can review the financial statements of a condo corporation as disclosed in a status certificate prior to submitting an offer, or after an offer has been accepted, with a conditional period allowing you to review these documents before proceeding with your purchase. If there are any concerns, you can speak to property management or request the minutes to the most recent Annual General Meeting.
When reviewing the financial statements, have a look at the current balance for the reserve fund. This is the “savings account” for the building – a portion of your monthly condo fees contributes to this fund. Also examine the plans for future funding.....every 3 years, the condo corporation must hire an engineering firm to inspect all of the major components within the building to determine its current condition and estimate when major repairs or replacements will be required for those major components, including the roof, repaving the parking garage, elevator refurbishment, lobby renovation, the building’s chillers/boilers, etc. This would also include windows.
Once they’ve determined an estimate for when major repairs or replacements will be needed, they then look into whether current contributions to the reserve fund will be enough to accumulate the funds needed in the future for these expenditures. If they do not feel that it is adequate, they will make recommendations to the board to increase the monthly contribution from all owners, and in turn an increase in the maintenance fees. These planned increases and expenditures will all be outlined in the status certificate.
However, despite the most prudent planning and responsible financial management, sometimes building components fail before their estimated lifespan. If the building has to cover a large expense that would either deplete the reserve fund, they have several options, including:
-
Take out a loan – not ideal but some corporations have been successful in managing debt to cover unforeseen expenses
-
Temporary increase in maintenance fees – depending on the amount needed to cover the cost of the unplanned repair or replacement, some corporations may increase every unit owner’s maintenance fees for 1-2 years to acquire the necessary funds, and then bringing the maintenance fees back to a similar level once the set period is over (with a possible minor adjustment for increased operating costs like utilities or labour)
-
Special Assessment – often buildings will levy a special assessment to collect the funds from each unit owner, either as a one-time payment or in several installments over time. Typically the amount owing will correlate to the size of your unit, with the larger units paying a larger share of the special assessment.
In the situation shared in the news article, the windows in the building needed replacement and the board decided a special assessment was required to generate the necessary funds, either because they had not anticipated this expense so soon and the reserve fund was not sufficient to cover the cost, or they had not raised the maintenance fees enough over time to ensure that sufficient funds would be available when these major repairs were needed. However, the owner was given 3 years arrange for payment of this special assessment. The legal fees and interest are being tacked on because of her overdue payment.
2 more things to note....it is unlikely that the building will sell the unit as mentioned in the article – I’m not sure that is even possible. What will likely happen is that they will register a lien on the property so whenever the owner does sell, the condo corporation gets paid the outstanding amount owing to them for the special assessment. Also, if faced with a special assessment, contact your insurance company. In certain circumstances, some of these unexpected repairs required for the building may actually be covered under your personal condo insurance policy, so some of the special assessment cost may be paid by your insurance company.
As always, we are here to answer any questions related to these topics or about condo ownership in general. Your real estate lawyer is also a valuable resource when reviewing the status certificate documents and discussing the financial health of a building you’re about to purchase a unit in. You can’t predict everything that might happen in a building in the future but hopefully, having an active and prudent board of directors, along with understanding your rights and responsibilities as a condo owner, will mean that you’ll be more prepared to face these potential predicaments should they occur.
Post a comment