FIFTEEN THINGS YOU NEED TO KNOW BEFORE BUYING A CONDOMINIUM
Buying a condominium is somewhat like buying stock in a new company; you shouldn’t invest your lifesavings in either unless you are satisfied that it is a sound investment and that means asking questions.
Moving into a condominium involves trading some of the privileges you might enjoy by owning a ordinary home, such as choosing the colour of paint for your front door, for the benefits of condominium living, (somebody else has to paint the door!). While some people may be concerned about the restrictions that sometimes apply to the condominium lifestyle there are many advantages, including:
q relief from maintenance and repairs;
q enjoyment of recreational facilities;
q a sense of community that, all too often, is not present in normal subdivision developments;
q the comfort in knowing that the condominium has certain rules that will ensure your enjoyment of your unit and the common elements, which are not available in normal subdivisions; and
q the ability to exercise some control over your living environment by utilizing your voting privileges.
Start by talking to a realtor who is experienced in condominiums and explain what it is you are looking for, (e.g. a downtown loft close to the subway or a town house near a school). Retain a real estate lawyer who is also familiar with condominiums before you make an offer. You will only have a matter of days to firm up a conditional offer and you can waste precious time searching for one who can help you
Up until the time the current Condominium Act came into force, all condominiums were treated the same, regardless of whether they were a high rise tower or a townhouse or bungalow unit. The new Act now recognizes five (5) different types of condominiums which are briefly described as follows:
1. Common Elements Condominium: this is a condominium where there are no “units”. Instead an interest in the common elements is attached to an adjoining, piece of land referred to as a “Parcel of Tied Land” or “POTL”. The POTL is usually a freehold detached home.
2. Vacant Land Condominium: a vacant land condominium is a condominium in which there are both common elements and “units” however, the units are actually created as a piece of vacant land, similar to buying a vacant lot in a subdivision, upon which the owner will have a house constructed. The “unit” would then include all of the land in its boundaries as well as any dwelling units or other structures constructed on it.
3. Leasehold Condominium: this is a condominium in which the ownership of the land upon which the condominium buildings are constructed will remain with a developer or be owned by investors. The owner then leases the land and buildings to the condominium corporation for a minimum initial term of forty (40) years. Purchasers will then acquire a leasehold interest in their unit. The corporation will pay rent to the owner from the common expenses.
4. Phased Condominium: a phased condominium is a condominium corporation that is built in stages. When stage one is complete, a condominium corporation is then registered to include the units that have been constructed. The developer can then build the next stage. Once it is completed, it is then merged into the original corporation and so on until all of the condominium units are completed.
5. Standard Condominium: essentially, a standard condominium refers to all condominiums other than the ones noted above. All condominiums that were in existence prior to May 5th, 2001, are considered standard condominiums regardless of where the boundaries of the unit would be.
These are the legal terms used to describe the type of condominium that you might be purchasing. However, there are many different “styles” of condominiums such as, high-rise, low-rise, loft, townhouse, bungalow, detached home, work/live (i.e. commercial unit on ground floor with residential living space above), recreational (e.g.. cottages), commercial and industrial, as well as combinations thereof. One thing to remember is that regardless of the style or type of condominium, they are all governed by the Condominium Act, 1998, as well as the governing documents for the individual corporation, which includes the Declaration, the By-Laws and the Rules.
You can find out a great deal of information about a condominium by purchasing a “Status Certificate” from it. They cost $100.00, and are worth every penny. You should buy one before you firm up your offer. The simplest way to do this is to have your agent make the offer conditional for 10 days to allow you to obtain the certificate, review it with your lawyer and be satisfied with its contents and attachments.
These certificates contain, among other things:
q confirmation of the amount of the reserve fund;
q whether the unit you are buying is up-to-date for common expense payments;
q whether there are any large increases in monthly common expenses being considered;
q whether there are any special assessments being considered;
q whether the corporation is a party to any legal actions;
q a copy of the current budget;
q the most recent audited financial statements; and
copies of the condominium’s Declaration, By-laws and Rules
(Tip: Read the rules carefully: if you don’t think you can abide by them look somewhere else but also keep in mind that all condos have rules.)
Local or provincial real estate associations, such as the Toronto Real Estate Board, (TREB) or the Ontario Real Estate Association, (OREA) have developed standardized forms specifically designed to be used when purchasing a condominium. Make sure the offer you are making is the one used locally for condominiums. Ensure your offer contains a condition allowing you time to get a status certificate and get it to him/her promptly so they have time to review it and discuss it with you. Watch out for standard clauses that are crossed off when the offer is returned and discuss them with your lawyer. If you are borrowing money from a bank for your purchase make sure you know how much you will be able to borrow and are pre-qualified for the loan before you make an offer.
A Disclosure Statement is a package of information about a new condominium that is to be built or is under construction. It contains much of the same information as the Status Certificate. When buying a new condominium unit from a developer, a purchaser is guaranteed a 10-day “rescission” period, within which they can review the disclosure package, preferably with your lawyer. If you don't like what you see, you can rescind your offer to purchase and receive your deposits back if you do it within the ten day rescission period.
In a seller’s market, it is often difficult to negotiate any changes to the sales agreement being offered by the developer, however, there is no harm in asking. As an example, most agreements contain provisions setting out what additional costs may be charged back to the buyer at the time of final closing. These are called “adjustments”. It may be possible to negotiate some of these charges. These provisions must be read carefully as they can easily add several thousand dollars on to the purchase price. Make sure you have your lawyer review the Agreement; he or she may have additional recommendations.
You will also be asked to make additional deposits, so make sure that you have funds available to meet all deposit requirements before you firm up your offer.
In a new condominium, it is not unusual for you to be asked to take occupancy of the unit months before the developer is in a position to transfer the ownership of the unit to you. During this “occupancy period” you must pay an occupancy fee, (similar to rent), to the developer. When budgeting for your purchase, you should ensure that you have at least three - six months’ worth of occupancy fees available.
When you purchase a condominium unit, you automatically become subject to the provisions of the Condominium Act, 1998, which governs all condominiums in Ontario. The current Act includes provisions that, among other things provides for penalties for non-payment of common expenses or violations of the Corporation Rules and Regulations. The Act ensures that the condominium has sufficient funds to operate, that everyone pays their fair share of that cost and obeys the rules.
The Declaration is the document that creates the condominium corporation in a similar manner as Articles of Incorporation gives life to a private company. It will contain certain mandatory provisions as legislated by the Condominium Act 1998. It will contain a specification of the boundaries of your unit, the percentage used to calculate the monthly common expenses for your unit and other restrictions and obligations that may affect the use of your unit. It should be reviewed carefully.
By-Law's set out the basic organizational and administrative functions of the Corporation, including the duties of its Board of Directors and officers. The by-laws also make provision for calling owners' meetings and for the election and qualification of the Board of Directors.
All condominium corporations have rules which form the standards of behavior for the community. These govern the day-to-day use of your unit and the common elements. Without being specific, most Corporations’ Rules contain provisions prohibiting the causing of any nuisance, excessive noise or any other disturbance which may interfere with the use and enjoyment of the units by other unit owners. Other rules may relate to parking, pets, use of BBQ’s and the use of common amenities, (e.g. swimming pool, spa, work shop, etc,).
You have the right to insist that the Declaration, By-laws and Rules be complied with by all other unit owners, tenants or other residents of the condominium complex and, yes, you should care because the other owners can insist that you abide by them as well.
These fees provide the condominium with the cash necessary to maintain the common elements, fund the reserve accounts, pay for property management and generally operate the Corporation. Upon purchasing your unit, you will become responsible for making common expense payments to the condominium corporation. For re-sale condominiums the amount of the fees will be set out in the Offer to Purchase. For newly constructed condominiums they will be estimated based upon the draft budget in the disclosure statement. For new condominiums don’t be surprised to see them go up by 25%-30% (or more) in the second year as the budget for new condominiums may be drafted years in advance and may not anticipate increases in utilities and other operating expenses.
The amount of common expenses can vary greatly depending the size and type of condominium that you are looking at and the amenities, if any, that it contains. Generally speaking the old adage, “you get what you pay for” is very applicable to condominium common expenses.
(Tip: for new condominiums take the estimated common expenses and increase them by 50%. If you can still afford them, you should be fine for a number of years)
The Reserve Fund is a trust fund established by condominium corporations to anticipate extraordinary costs for major repairs to the capital components of the condominium’s common elements. At least ten percent of your common expense payments must be deposited directly into the Corporation's reserve fund. Most condominiums contribute much more to the reserve than 10%. Whether the Reserves are adequate is difficult to predict as there are too many variables which may affect its size but generally speaking, the bigger the Reserve Fund the better, (other than in brand new condominiums which will naturally start off with a small reserve).
The majority of condominiums in Ontario are governed by an elected Board of Directors. The board members are usually other owners in the condominium. They are elected by the owners at the Annual General Meeting, (“AGM”) of the condominium. They are given the responsibility of administrating the condominiums’ business and financial affairs. You should remember they are volunteers, they usually don’t get paid for the job and they are your neighbours, so support them and give them the respect they deserve.
All condominiums are administered by an elected board of directors but they cannot be expected to undertake all the tasks there are in running the condominium on a day to day basis. As such many condominiums hire professional property management companies to assist them. The Manager's role, among other things, is to oversee the day to day operation of the Corporation, see to the collection of common expenses, advise the Board of Directors, assist in the preparation of budgets, and attempt to enforce the Rules. The Property Manager can be a valuable source of information about the condominium and you shouldn’t hesitate to call him or her if you have questions concerning the unit or the condominium.
The Condominium Corporation is responsible for insuring the common element areas and the unit. This insurance coverage includes public liability for those areas. However, you are responsible for obtaining your own insurance for your contents and any improvements that have been made to the unit since it was first constructed, (e.g. new carpeting, wall paper or new fixtures). In addition, you are responsible for obtaining personal liability insurance for your unit. You must obtain a proper condominium unit insurance package and NOT a "tenant’s package".
The only exception to this general rule is for common element condominiums and vacant land condominiums. In both of these types of condominiums the owners do have to insure their own home.
(Tip: Consider getting your unit insurance from the same company that insures the condominium; this goes a long way in eliminating disagreements over which policy covers the damage.)
Generally speaking you can decorate or renovate your unit as you see fit although the condominium may have rules about the time of day that such renovations can take place. If the renovations’ are substantial and/or affect structural components of the unit, other units or the common areas, you will likely need permission from the Board of Directors in advance. They may also require you to sign an agreement made in accordance with s. 98 of the Condominium Act, 1998 and have that agreement registered on title to your unit.
q MOVING: Some high-rise condominium developments have specific rules about when you can move your belongings in. You should contact the manager or superintendent for the building directly to make your moving arrangements.
q ELEVATORS: In high-rise developments, you are typically required to reserve the elevator well in advance of your moving date. Most corporations charge a security deposit for use of the elevator.
q UTILITIES: In some condominiums utility charges and cable t-v are included in the common expense, you should ask the Vendor or the Manager of the building what might be included. This is more common in high-rise developments. Smart meter legislation will likely require almost all high rise condominium unit owners to pay for their own electricity at some point in the near future,
q KEYS: Some condominium corporations require that Vendors turn in their security keys, garage door openers, pass cards, etc., to management at the time they move out. Therefore, you may have to make arrangements with management to obtain your security keys from them before moving in. Most high-rise and some other condominium corporations require that you must provide the corporation with a key to your unit or ensure that the master key for the condominium fits your lock.
q PARKING: Almost all condominiums have restrictions on the availability of parking. If you have two cars but only one parking space designated for your use don’t count on being able to park your second car in a visitor’s parking space or another owner’s space. If you do your car can be towed. Some restrictions also apply to parking commercial vehicles, recreational vehicles, trailers and boats. If this is a concern ask management or someone on the board.
q PETS: Some condominiums prohibit owners from having any pets. Many more have rules governing the number, type or size of pets. All condominiums have rules governing the keeping of pets which if broken can lead to removal of the pet from the complex. If you have a pet make sure you understand what the rules are and let your realtor and lawyer know so they can verify that pets are allowed.
q MAINTENANCE AND REPAIR: In most condominiums the corporation is fully responsible for the maintenance and repair of the common elements. In some, however, these duties may be shifted back to the homeowner to some extent. If you are concerned about this type of thing you need to talk to the vendor and the property manager to confirm who is responsible for what.
Condominium is a lifestyle that is enjoyed by millions of Canadians. There are many types and styles of condominiums available on the market today that will suit almost anyone’s needs, (and more to come). There is no question that condominium living is becoming the lifestyle of choice for many Canadians both young and old, but the key to successful condominium living is knowing what you are buying into, so research your condominium choice thoroughly before signing on the dotted line.
RON DANKS is a partner with the Hamilton/Burlington business law firm of Simpson Wigle LLP. He can be contacted at firstname.lastname@example.org
JOIN the CCI today! Check us out at www.ghccci.org.