Do Canadian Condo Buyers Understand What They're Buying?
by PJ Wade
Condominium sales continue at record-breaking levels in many regions across Canada, but do condominium buyers understand exactly what they are getting into? Condominiums starts grew by 33.7 per cent in 2003 to reach a record level of 49,200 units, accounting for one in four urban housing starts. This type of housing allows buyers to purchase locations and amenities through shared ownership that they may not be able to afford to buy alone as a single dwelling. Million-dollar waterfront and recreational locations are excellent examples of the power of this style of ownership. However, buyers should keep in mind that the smartly-decorated unit they are buying comes with a Board of Directors that will govern life in the complex according to condominium bylaws and regulations. If the operational policies, standards and restrictions gel with a buyer's lifestyle, harmony reigns. Condominium living may require less physical involvement since property management companies are paid to keep up grounds and buildings, but owners have responsibilities in the operation of the condominium complex if they wish to ensure a good return on investment. While detached and semi-detached home owners are sole decision makers on maintenance and improvements made to preserve market value and accelerate appreciation, condominium owners must rely on decisions made by and with other owners, the Board and property managers. Condominiums are often called "creatures of statute" since the style of ownership involved is a product of legislation. The complexities of law are compounded by concepts not usually associated with traditional home ownership: units, common elements, condominium boards, voting rights, property management contracts and reserve funds. For instance, Lisa Kay, Program Manager of the Maxium Condo Finance Group recently shared her concerns about the impact of cash shortfalls on value preservation in The Condo Voice: "Industry experts estimate that up to 40 per cent of Ontario condominium reserve funds are inadequate! This means a shortfall or 'gap' exists between the reserve fund and the cost of repairs and replacements. At the same time, energy costs are soaring with further increases almost a certainty. Luxurious new condos are going up in the neighbourhood, causing unit owners in the older buildings to ask for substantial improvements to common elements." Condominium corporations are required to establish one or more reserve funds to which unit owners contribute in anticipation of significant or unexpected expenses, including major repairs and replacements of common elements and assets. A reserve fund study determines the amount owners pay into this fund in addition to their regular common expense contributions. If the reserve fund study is incomplete or a shortfall is revealed, Kay offers three solutions for Boards to consider: - Deferral of repairs using a piecemeal or phased approach.
- One-time assessment and/or monthly fee increases
- Borrowing to finance reserve fund shortfalls.
Each of these solutions carries drawbacks and advantages for owners that may differ within the owner population. Some unit holders may prefer a special assessment or a monthly fee increase over the prolonged disruption of phased repairs; others may find these additional expenses an unbearable financial burden. Individual concerns may be expressed, but will be acted on to varying degrees. Substantial common element improvements require approval of at least two thirds of the unit owners while the Board makes decisions on allocations for major repairs and replacements. Kay reports that, under Ontario's Condominium Act, all condominiums that are more than one year old should have completed their Reserve Fund Study by May 5, 2004 and their funding plan by September 2. "These new requirements under the Act promote sound condominium common element management," says Kay, a supporter of The Condominium Institute of Canada (CIC). "They support a safe and pleasant place in which to live, ongoing financial health and market value preservation for all condo unit owners." The Condominium Institute cautions buyers, owners and condominium corporations alike: "Before you hire a lawyer, an accountant, a property manager, an insurance agent or any other professional, check their condominium credentials. Practicing law and practicing condominium law are not one and the same. Practicing property management and practicing condominium property management are two entirely different endeavours." This national organization promotes its Associate of the Canadian Condominium Institute (A.C.C.I.) designation to Canadians in search of professionals with condominium expertise. CCI operates primarily through Chapters and describes itself as "Canada's only non-profit organization devoted exclusively to members of the condominium community including owners, directors and individual and corporate service providers." Source: With permission, "The Condo Voice," Summer 2004, Toronto Chapter, CCI. | 
