The change from living in a single family home to condo living is often seen as eliminating certain responsibilities leading to a less stressful life. This can but need not be the case. If you want less responsibilities, rent don’t own. People often talk about condos as though they are a special type of building. They are not; they are a form of ownership.
If you rent an apartment or house, you own the right to use the space on whatever terms are set out in the relevant provincial legislation and in the rental agreement. The landlord is normally responsible for the upkeep of the building. If you buy a condo, which may be physically identical to an apartment, you own property (your unit and a share of the building in which your unit is located) and are responsible for its upkeep. Understanding these terms is crucial to knowing what you have purchased. I did not, and what follows results from my learning experience. It should not be taken as professional advice but as a cautionary tale. The legal dimensions for condo ownership and operation are outlined below. Following are some of the issues to consider.
What are your condo fees?
This is a regular query. The direct answer of the dollar amount is easy to provide. The significance of the answer depends on knowing what expenses are met by the condo fees. My experience is that when buying a condo, neither the real estate agent nor your lawyer will necessarily have read all the required information which allows you to assess what items are paid for out of your monthly condo fees and how these costs may change over time. In turn, you may not know what questions to ask. The core of what is included in the condo fees is set out in the Declaration which may require some legal knowledge to understand.
Consider the following. A developer builds a condo building and establishes terms in the Declaration which permit a low monthly condo fee to be charged and thus a more competitive price for buying the unit. Over time this apparent advantage will be offset by the increased cost the unit owner must bear in paying directly for work that in other buildings was included in higher condo fees. For example, in some condos the windows are the responsibility of the unit owner, while in others the corporation assumes that responsibility and the cost is included in the monthly fees.
A portion of the monthly condo fees is set aside in a Reserve Fund to cover capital expenditures for which the corporation is responsible. Major repairs (roof, windows, elevator) will eventually have to be undertaken to the building of which you are a part owner. If sufficient funds have not been accumulated, these will be financed either by a special assessment on each unit to cover the costs or by levying a higher monthly payment or both. These payments reflect the fact that the original monthly assessment was set too low to cover future major repairs which under the Declaration are the responsibility of the corporation. If you are an original owner and have sold your unit, the higher costs may not affect you, although a potential buyer should be aware of what might happen and seek a lower price for the unit. If you are still an owner you will be hit with the required payments.
The Reserve Fund study addresses some of these issues and is discussed below. As a buyer you need to know what questions to ask at time of purchase and subsequently when approving condo fees adjustments.
What do condo fees pay for?
Monthly paid costs usually include some or all of the following:
Condo insurance for common areas
Insurance (see details below)
Hydro, heat and water for common areas
Fire and elevator inspections
Maintenance such as painting and minor repairs
Payment to the reserve fund for capital expenditures
Most of these costs involve the delivery of services – law, accounting, management – which are difficult to assess because they are intangible and you do not know if you are purchasing quality, unlike the purchase of goods like an apple or chocolate bar. Hydro and water are payment for goods where payment is for the amounts used and for the delivery services. Each year a condo is inspected for fire equipment. If there is an elevator there is a monthly maintenance visit. Many condo boards have little means to check whether these tasks are undertaken properly. It is the responsibility of the condo directors to ensure that they are, thus the need for directors’ liability insurance, a cost to the condo corporation. Similar costs are involved in single family home ownership so this is not unique to condo living.
What is the reserve fund?
Payments to the Reserve Fund (part of the condo fees) are made for financing major capital related items. By law, every three years a reserve fund study is conducted by a firm that meets the regulatory requirements, usually an engineering or appraisal firm. The initial study is done with a site visit by the firm. Three years later the study is updated without a site visit. That rotation is repeated. The study reviews the state of the building with an estimate of capital expenditures by category expected over each of the next 30 years. The Directors are responsible for the study being undertaken.
The study is useful in alerting the Board to major future expenditures but the exact timing of these expenditures can vary. For example, a roof may last 20, 25 or 30 years. The study may put it in at 20 years but the funds may not be needed until some years later. If the Board does not replace the roof at the recommended time as outlined in the study, it has to explain to the unit owners the reason for the delay. Any new owner will be given a copy of the latest Reserve Fund study and will want to know why a recommended replacement has not taken place. The timing of items for replacement beyond 2 to 3 years is a rough estimate….30 years out is little more than a guess.
I have experienced situations when the site visit by engineers did not detect work which needed to be done and when work was contracted for which was not completed in terms of the original specifications. The board can attempt to correct these situations but it requires continuous scrutiny of the work being performed and the willingness to sue if necessary……..caveat emptor.
What are the legal requirements of condo operation?
There are legal, financial and social dimensions to condo living, all of which vary with the size, location and other characteristics of the condo. As a start, the operation of condos in Ontario is subject to the province’s 1998 Condominium Act (posted on the web), which came into force in 2001.
Each condo unit is part of a Condominium Corporation which has a Declaration setting out the rights and responsibilities of the owners of that particular corporation. For example, the corporation elects a board of directors with responsibility for managing the corporation and can be sued by the owners. The board can propose a list of rules or by-laws for the corporation which has to be approved by the owners. In addition to the by-laws, some of which are required by law and which tend to govern the more serious matters, the Board may approve rules which may prohibit animals, smoking and the rental of units: some proposed rules such as who may own units may not be permitted by other provincial laws. The Declaration for each condo corporation is unique but has to conform to the general requirements of the Provincial Condominium Act. Each Declaration is like the constitution for the particular condo and any rules and by-laws are governed by the Declaration.
The order of authority of the documents governing each condo corporation is 1. The Condominium Act, 2. The regulations pursuant to the Condominium Act, 3. The Declaration, 4. The By-Laws, and 5. The Rules.
Most of what follows has resulted from my learning experience (from a low level) from being a condo board member for several years.
What do you own?
You own a share of the building and are jointly responsible (with other owners) for its upkeep. The inside of each unit is each owner’s responsibility to maintain, insure the contents and be liable for third party claims for incidents inside the space.
There are several insurance issues. The condo corporation buys a policy for the physical aspects of the building, public liability for the common areas of the corporation and for directors’ liability. Individual owners are responsible for insuring the internal aspects of each unit. There has to be a decision re the boundary between the inside and outside walls of each unit. Often the condo corporation insurance covers the internal walls as they were at the time of construction and before any improvements were made (the description of this will be set out in the Declaration). There then has to be a record of the standard unit (a bylaw) at the time of registration as a condominium corporation to determine what was original and what constitutes improvements. As the latter is the responsibility of unit owners, the owner’s insurance has to be aware of what needs to be insured.
Each owner should make sure that their insurance policy covers everything which is not covered by the unit description in the standard unit bylaw. This will ensure that its policy meshes with that of the policy for the condo corporation. My impression is that an insurance company or agent will tell owners that they are covered but seldom read the condo declaration which determines what the corporation is responsible for and what the owners are responsible for.
Who manages the corporation?
The number of units per condo corporation varies from about three or four to several hundred. A small number of units will likely be managed by the owners who are also condo board members, usually unpaid for providing these services. As the number of units rise, a management company may be hired to keep the accounts and ensure that the required maintenance work is done and the required inspections are made – for fire and elevator for instance. A corporation with 10 to 30 units may hire a company whose monthly fees are paid for out of the condo fees (as would be the case for 100 units). Because there are scale economies a larger number of units will get more or cheaper services per dollar paid as it costs the management firm less per unit to manage a larger number. Low management fees per unit will result from a combination of lower costs per unit to the firm and less services offered in the case of a smaller number of units.
In larger operations, a live-in superintendent may be hired to provide onsite services such as handling small repairs , receiving parcels, meeting outside contractors when needed, and generally dealing with the many day-to day issues which arise constantly. Where there is no superintendent, these services are provided by a combination of board members and a management firm if used. There can be tensions when owners ask board members for work to be undertaken and procedures are required so that owners know whom to contact for particular requirements…….. the devil is in the details to ensure that owners get services and unpaid board members don’t feel like janitors.
Whether you live in a condo, a rental apartment or single home, you have neighbours. In any of these instances, you have little control who will be your neighbours , unless you live in a rural area. One major difference in a condo is that you share ownership with the other unit owners and so have to interact with them for certain business matters. All owners are equal in this sense although those who have owned for a longer time may feel differently.
What actions to take when buying a condo?
1. Try to meet an existing unit owner and former owner other than the person selling the unit to determine what it is like living in the building.
2. Ask to meet the president of the condo corporation and a representative of the management company, if there is one.
3. Ask to see a copy of the Condo Declaration, the by-laws, the Condo Rules and the Reserve Fund Study. Make sure your agent and lawyer is familiar with these documents and can explain them to you. They need to conform to the current provincial legislation.
4. Find out what the condo fees cover and how they may change over time. For example, most condo corporations are responsible for the outside shell of the building (windows, walls, roof), but in some cases the individual unit owner is responsible for the outside shell. Fees will be lower in the latter case but the owner then has to pay for external costs of the unit. Problems can arise if repairs are needed to an exterior wall covering more than one unit. One owner may want to do the repairs but not the others. The value of the building can be adversely affected if only part of the repairs is done.
5. Find out where your parking space is and what storage space you will have.
My thanks to Tim Turner for his informed comments on an earlier draft. I alone am responsible for the views expressed here.