Questions about Condos?
QUESTIONS TO ASK?
- What is the current state of construction, and how quickly can it be expected to progress?
- Does the occupancy date meet my requirements?
- Can the occupancy date be changed and under what conditions?
- Is the building type (i.e. high-rise, townhouse, freehold/bare land, loft) the one I really want?
- Will a provincial new home warranty program cover the unit?
- What is the purchase cost of the unit, and what is included in that cost?
- What other costs will I have to cover when I take ownership, and how much should I expect to pay for each?
- What are the current monthly condominium fees, and what do they include?
- What mortgage is right for me?
- Will I be able to meet all of my financial obligations if I buy this condominium?
- Will I need mortgage insurance and if so, what does it cost?
WHAT DO MY CONDO FEES COVER?
Unit owners pay a monthly condominium fee the cover their portion of the operating expenses of the common property elements.
A portion of this fee is allocated to the reserve fund for major repairs and replacements over the life of the building. Calculation of condominium fees varies by province but is usually specified in the governing documents of the condominium corporation.
Condominium fees are usually calculated from the annual operating cost of the entire condominium and divided by the percentage of your contribution to the common expenses (your unit factor) as outlined in the condominium governing documents and/or local legislation.
These fees may include:
- Day-to day care and upkeep of the common property elements (e.g. snow removal, landscaping, cleaning of common elements including carpets and exterior windows, heating/cooling system maintenance);
- Contributions to the reserve fund, which is used to pay for major repairs to, and replacement of, common building systems to ensure the condominium is kept in good repair over the life of the building;
- Property management fees;
- Building repair and maintenance;
- Salaries (e.g. superintendent, security guards, concierge);
- Amenities (e.g. use of pool, recreational facilities, party room);
- The corporation’s insurance policies;
- Cable and/or Internet access.
What is and is not included in a condominium’s monthly fees should be clearly outlined in the operating budget. You should be able to find out more about the condominium fees from the vendor, property manager, the Board of Directors or the developer prior to purchasing a unit. The fees should be stated in the disclosure statement (for new condominiums) or in the estoppel or status certificate (for resale condominiums). These fees may have to be adjusted from time to time to reflect the changing costs of goods and services and the state of the reserve fund. Each adjustment is reflected in the next year’s budget.
If the Board overestimates the common expenses, the surplus is wholly applied either to common expenses or is paid into the reserve fund. Refunds are not given to unit owners. If a unit owner sells a unit before the end of the condominium corporation’s fiscal year, the owner cannot obtain a refund for common expenses but may add it to the unit’s purchase price.
WHAT DO I OWN WHEN I BUY A CONDO?
When you buy a condominium, you own your unit, as well as a percentage of the common property elements allocated to the unit. The boundaries of each individual unit and the percentage of common elements you own may vary from condominium to condominium, depending on how they are specified in the condominium’s governing documents. The boundaries of your condominium unit are an important consideration at the time of purchase-particularly if alterations and renovations are a potential part of your purchase plan. The unit typically includes any equipment, systems, finishes, etc. that are contained only in the individual unit. The right to use one or more parking spots and storage areas may be included.
For a freehold condominium (or a bare/vacant land condominium), the unit may be the entire house including the exterior walls, the roof and in some cases, the land surrounding the structure. Prior to making a purchase, you may wish to hire a professional surveyor to review the site plan for the condominium corporation so you know exactly where your unit's boundaries lay.
Components of building systems that serve more than one unit, such as structural elements and mechanical and electrical services, are often considered part of the common property elements, particularly when they are located outside of the unit boundaries specified in the condominium’s governing documents.
There may be some parts of the condominium complex that are called “exclusive use common property elements.” They are outside the unit boundaries, but are for the exclusive use of the owner of a particular unit. Balconies, parking spaces, storage lockers, driveways and front or rear lawn areas are common examples of exclusive use common property elements. While these spaces are exclusive to your use, there may be restrictions on how and when you use them. For instance, you may not be able to park a boat, RV or commercial vehicle in your assigned parking spot, or there may be restrictions on what you can place on your balcony.
WHO TAKES CARE OF THE CONDO?
Most condominium corporations contract out the day-to-day operations of the condominium to a property management company under the direction of the condominium’s Board of Directors. A property manager may take care of the cleaning common areas, bill payment, operation of heat, hot water, and air conditioning systems, and snow and garbage removal.
However, there are usually limits on the property manager’s authority. Anything that requires a major expenditure, or an expenditure not accounted for in the annual budget, may have to be approved by the Board of Directors.
Operational problems within individual units are typically the owners responsibility unless they are related to the common elements (e.g. heating systems, roofs, windows, exterior walls). Some condominiums prefer to deal with the management of daily maintenance themselves, instead of hiring a property manager. In these “self-managed” condominiums, the Board of Directors-and in some cases, volunteers who are residents or owners-will carry out the day-to-day tasks of operating the condominium.
Responsibilities vary from condominium to condominium and should be clearly laid out in the condominium’s governing documents. Prior to purchasing a condominium ensure your are comfortable with the management style.
WHAT RULES AND REGUALTIONS?
Every condominium is governed by its own unique rules, regulation, and by-laws. These may be very strict or very relaxed depending on the nature of the condominium corporation. For example, condominiums may have restrictions regarding the number of occupants per unit, pets, noise, parking and when certain amenities may be used. Many condominiums have strict rules concerning the alteration of the unit space or its appearance. For example, the condominium corporation may require all the exterior doors of units to be the same color to keep the architectural and community aspect of the condominium intact, or you may have to get permission from the condominium’s Board of directors before you change exterior fixtures.
Noise is an important consideration, especially for people moving from a single family dwelling to a multi-unit condominium. Many condominiums have rules regarding what noise levels will be tolerated and at what hours. For example, if you are hosting a party in your unit, you may be asked to turn the music down at a specific hour. Before you buy, clarify the rules regarding noise, and if possible, talk to current residents about any noise problems they have experienced in the past and how they were handled.
Individual condominium owners may be obliged to attend condominium meetings or serve on condominium boards and committees.
Almost all condominiums have requirements for the payment of monthly condominium fees. There can also be mandatory charges for unforeseen repairs to the condominium common elements. All rules and obligations should be available from the unit’s vendor (the seller), the property manager, or the Board of Directors.
WHAT INSURANCE WILL I NEED?
Both the unit owner and the condominium corporation must have insurance. Specific insurance requirements vary from province to province; so make sure you are familiar with your area’s rules.
TYPICALLY, THE CORPORATION MAY BE RESPONSIBLE FOR INSURING:
- Common areas and units;
- The corporation’s property, such as furniture, equipment, vehicles, etc.;
- Personal liability-against claims for bodily injury and/or property damage occurring on the condominium property or caused by some act or omission or the condominium corporation;
- Boilers and equipment (for example, elevators, HVAC systems, etc.);
- Directors and Officers insurance-to respond to claims made personally against a director or officer of the condominium;
- All perils as per the condominium governing documents.
WHAT ARE THE COMMON RESPONSIBILITIES OF THE OWNER?
Personal property contents such as appliances, furniture and jewellery, and items stored in lockers;
Improvements and betterments made to the unit (for example, finishing a basement, installing new cabinets). Check your provincial legislation to find out if insurance for improvements is your responsibility;
CAN I RENT MY CONDO?
Many condominium buyers purchase their units as an investment with the intent of renting the unit out. While most condominium corporations allow owners to rent their units to a third party, you should confirm this through a review of the condominium’s governing documents and your provincial legislation.
HOW DO I KNOW IF A CONDO IS IN GOOD FINANCIAL CONDITION?
The financial well being of the condominium corporation is an important consideration. Buying into a condominium corporation that is insufficiently funded to operate and maintain common elements is a risky proposition.
Low condominium fees may make one condominium more appealing than others, but it may be a sign that the condominium corporation is ill prepared to fund major repairs and renewal projects. As a result, the condition of the condominium property can deteriorate or you may be faced with a substantial charges from the condominium to cover repair costs as they occur.
Fortunately there are ways to determine the financial status of the condominium based on the documentation that the condominium corporation is obliged to keep, such as the annual operating budgets and end-of-year financial statements. For new condominiums review the disclosure statement.
WHAT IS THE RESERVE FUND?
The purpose of a reserve fund is to provide financing for major repairs and renewal projects over the life of the condominium building. The fund essentially ensures that the condominium common elements will be maintained in good shape for the life of the project. The amount required to be in the reserve fund depends upon the condition and life expectancy of all of the common elements in the building and the estimated cost to replace them over the life of the project.
The amount each unit owner is required to contribute to the reserve fund, usually via monthly condominium fees, is determined by estimating what would have to be set-aside on a monthly basis to cover the long-term costs.
Reserve fund studies are updated from time to time, depending on provincial regulations or at the discretion of the condominium corporation. Professionals capable of assessing the condition of the common elements of the building, estimating remaining life spans, conduct the studies and the related repair and/or replacement costs. Based on their observations, the reserve fund study estimates the monthly or annual contributions necessary to fund the long-term renewal of the common elements.
Based on the reserve fund study, the Board of Directors can propose a plan for the sustainability of the fund, including monthly contributions from owners as part of the condominium fees.
Ensure you obtain and review either the disclosure statement or the estoppel or status certificate to determine the current state of the reserve fund.
HOW DO I KNOW IF A CONDO IS IN GOOD PHYSICAL CONDITION?
Very often, new home warranty programs that ensure the common property protect new condominiums. In such cases, an inspection will be conducted to ensure that the condominium is properly constructed and finished. Any defects in or omissions of warrantied elements will be listed and the developer may be obliged to correct them if they are material. Long-term warranties on major components such as structural elements can run for as long as 5-7 years after a building is completed, after which point, a performance or technical audit may be conducted to identify deficiencies before the warranty expires.
For existing condominiums, the condition of the unit and building you are considering buying can be determined by a review of technical audits (essentially a building-wide inspection) done in conjunction with reserve fund studies. These audit will provide you with an overview of the condition of the building and common elements, but not necessarily of any of the individual units. A technical audit may be available as a part of the reserve fund study in some provinces. Avoid any surprises and ask to see these reports before you make your decision.
You should also consider hiring a qualified home inspector, who specializes in the type of condominium you are thinking of buying, to inspect the unit and building. The inspector should have condominium experience and provide a detailed written report on the unit and visible common elements, whether any repairs are necessary and the estimated cost.
It is always a good idea to examine the inspection contract very closely to determine what exclusions or disclaimers it contains. Ask for the credentials of the inspectors (e.g. membership in the Canadian Association of Home and Property Inspectors) or (is the inspection firm licensed provincially) and ask for proof of errors and omissions insurance. If a costly repair is required that was missed in the report, the inspector might become financially responsible to compensate you for the repairs. Finally, use this checklist to ensure you remember all the areas.
WHAT INFORMATION DOES THE CONDO CORPORATION HAVE THAT COULD HELP ME?
Whether you’re buying a new condominium from a developer, or looking at a re-sale property, the seller should provide you with information about the unit and the corporation.
ARE THERE ESSENTIAL DOCUMENTS I SHOULD INCLUDE?
- Governing documents: constitution, declaration, condominium plan, by-laws;
- Estoppel/status certificate for resale condominiums or disclosure statements for new condominiums;
- Reserve fund study and/or performance/technical audit;
- Operating budget, financial statements, annual general meeting minutes and reserve budget (for re-sale condominiums).
If you are having difficulty obtaining information on a condominium corporation or a particular unit, consult your lawyer or check your provincial regulations for your rights regarding access to information. You may also want to reconsider purchasing a unit in a building where such documents are difficult to access as it may be indicative of problems with the building or condominium management.
If you are looking at a re-sale condominium, you may be able to meet some of your prospective neighbors, speak with the Board of Directors or ask questions to the property manager.
ARE THERE ANY EXTRA ORDINARY EXPENSES?
If the condominium has a shortfall in the operating budget or reserve fund, or unforeseen events occur (for example, a rise in heating costs or a need for a major repair or renovation), the higher cost will necessitate an increase in your contribution.
When this happens, each owner could be given a special assessment charge. The amount owed by each owner is calculated by the percentage of ownership, or unit factor as previously discussed. The amount owed by the owner may be either added as a lump sum to one month of an owner’s regular monthly condominium fees, or, could be spread over a period of time by increasing a number of monthly condominium fees.
Special assessments are uncommon but in some cases they can be substantial. This is why it is important to review the financial statements, reserve fund level, building condition surveys, inspection reports, maintenance history and the estoppel or status certificate for the corporation before you commit to buying.
All content in these pages adapted from the Canadian Mortgage and Housing Corporation’s “Condominium Buyer’s Guide".
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