Introduction to condominiums: the basics
By AdvocateDaily.com Staff
Prospective homeowners should seek advice before leaping into the unique world of condominium ownership, says Mississauga real estate lawyer Jia Junaid.
Junaid, principal of Atlas Law, says the relative affordability of condos has made them a popular choice, especially for younger adults struggling to get a foot on the property ladder.
“As land runs out, and prices continue to go up, condos are looking more like the way of the future for millennials,” she tells AdvocateDaily.com.
Indeed, according to the most recent census data, almost two million Canadians live in condos, an increase of almost 17 per cent in Census Metropolitan Areas (CMAs) since 2011. That accounts for 13.3 per cent of the entire population, but the numbers are even greater in cities with high property prices — about 20 per cent of Torontonians live in condos, as well as about 30 per cent of Vancouverites.
However, Junaid says many new buyers are confused by the rules and restrictions that come with condo ownership, having grown up in traditional single-family dwellings.
“Condos are a cheaper option, but it’s still a significant investment. It’s a different type of ownership style, so it’s better to get some advice up front so that you know where you stand,” she says.
“Condo corporations are essentially self-governing communities and a type of not-for-profit organization,” Junaid explains.
While individual owners hold title only to their unit, they are collectively responsible for the condo’s common elements, which may include the lobby, swimming pools, party rooms, gardens or other features.
Each owner pays condo fees — which are set by the board and vary depending on the size of a unit — to cover the cost of maintenance, repairs and other common expenses such as property taxes or utilities.
Junaid explains that Ontario’s Condominium Act gives corporations the power to set their own bylaws and rules via a board of directors that meets regularly and is elected by unit owners to oversee the finances, records, and maintenance of the corporation.
“If you think of the owners as shareholders in a business, the board is essentially managing the operation on their behalf,” she says, adding that many boards will outsource some of their day-to-day responsibilities to a property management company that reports to them.
Before buying a condo, Junaid says purchasers need to make sure they or their lawyer have conducted a thorough review of the corporation’s documents, including the condo declaration, bylaws and rules.
"Never sign a binding agreement of purchase and sale without a thorough status certificate review," she warns.
Condominiums can set restrictions on matters large and small that may be deal-breakers, including pet ownership, short-term rental of units, and even the colour of drapes visible from the street, Junaid says.
“You don’t want to make the investment, move in, and then discover a problem that you could have uncovered with a status certificate review. If you’re hoping to litigate the issue afterwards, it’s an uphill battle, and probably a losing one.”
Condo fees and reserve funds
Another piece of due diligence for prospective condominium owners concerns the financial health of the corporation. While many are tempted to go for a condo with low fees, Junaid says that should not be the only factor that goes into a decision.
One use for the fees is to replenish the corporation’s reserve fund, which the board will dip into for major repairs and maintenance.
“Some buildings will have millions of dollars in there, while others will have less than $200,000,” she says. “Older condos typically need more because of the extra wear and tear that come with a building built in the 1990s.”
Boards typically hire engineers to conduct a study of the state of the property and estimate how much money will be needed to cover the expected maintenance in the coming years.
Junaid says buyers will want to make sure there is a healthy reserve fund at their chosen building because they could be hit with a special assessment levied on all unit owners in cases where the fund is found to be in a shortfall.
Even after condo buyers take the plunge and complete a deal, Junaid says they should take an interest in the running of the corporation by attending meetings of the board, or even running for a spot as a director. At the very least, she encourages owners to cast their vote for board members at the annual general meeting.
“If you’re a passive condo owner, you may not know what is going on until it’s too late,” she says, recalling the experience of one client who discovered after the fact that her board had decided to hike the fees for units housing more than two children.
“Now she’s looking at suing, but it’s an uphill battle,” Junaid says.
Unit owners unhappy with the performance of the board can take advantage of a Condominium Act mechanism to remove directors who are not acting in good faith or failed to declare conflicts of interest when handing out contracts for property management or maintenance.
“There have been cases where directors were successfully sued for not doing their job properly,” Junaid says. “Sometimes owners feel helpless, but there are processes there for them.”
This is the first instalment of a two-part series on condo ownership.
Stay tuned for part two, where Junaid will answer some frequently asked questions posed by prospective buyers.