- What is a condominium?
- What do I own when I buy a condo?
- What rules and restrictions might I encounter in a condo?
- Who takes care of the building and grounds?
- What insurance will I need?
- Should I buy a new or resale condo?
- What is included in my condo fees?
- How do I know if a condo is in good financial condition?
- What is a condominium reserve fund?
What is a condominium?
A “condominium” typically refers to a form of legal ownership, as opposed to a style of construction. Condominiums are most often thought of as high-rise residential buildings, but this form of ownership can also apply to townhouse complexes, individual houses and low-rise residential buildings. Condominiums are also known as strata in British Columbia or syndicates of co-ownership in Quebec.
Condominiums consist of two parts. The first part is a collection of private dwellings called “units”. Each unit is owned by and registered in the name of the purchaser of the unit. The second part consists of the common elements of the building that may include lobbies, hallways, elevators, recreational facilities, walkways, gardens, etc. Common elements may also include structural elements and mechanical and electrical services. The ownership of these common elements is shared amongst the individual unit owners, as is the cost for their operation, maintenance and ongoing replacement.
Each unit owner has an undivided interest in the common elements of the building. This ownership interest is often referred to as a “unit factor”. The unit factor for any particular unit will generally be calculated in proportion to the value that the unit has in relation to the total value of all of the units in the condominium corporation. The unit factor will tell you what your ownership percentage is in the common elements and will be used in calculating the monthly fees that you must pay towards their upkeep and renewal.
Once a condominium corporation has been established, a Board of Directors, elected by, and generally made up of, the individual condominium owners, takes responsibility for the management of the corporation’s business affairs. There is usually a turnover meeting where this transfer of responsibility takes place. Each unit owner has voting rights at meetings. Your voting rights will generally be in proportion to your unit factor.Top
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. Sometimes, the unit boundary can be at the backside of the interior drywall of the unit’s dividing walls. Alternatively, the unit boundary can be the centre line of the unit’s walls. 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. While you may have exclusive access to parking spot or storage area, you seldom actually own the space itself.
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 you 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. It is important to be aware of any exclusive use common property elements before you make an offer to purchase a condominium. While these spaces are exclusive to your use, there may be restrictions on how and when you use them. For instance, you many not be able to park a boat, RV or commercial vehicle in your assigned parking spot. There may also be restrictions on what you can place on your balcony.Top
What rules and restrictions might I encounter in a condo?
Every condominium is governed by its own unique rules, regulations and by-laws. These may be very strict or very relaxed depending on the nature of the condominium corporation. These are necessary to ensure that condominiums are properly operated and maintained, and to define the rights and obligations of the individual owners. With respect to rules regarding the individual owners, condominiums may have restrictions regarding the number of occupants per unit, pets, noise, parking and when certain amenities may be used.
Ensure you carefully review and consider all rules and obligations when considering the purchase of a condominium. They should be available from the unit’s vendor (the seller), the property manager or the Board of Directors. The rules of the condominium will be clearly outlined in the condominium governing documents, and you should become familiar with them prior to purchasing a particular condominium unit.Top
Who takes care of the building and grounds?
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. The cleaning of common areas, payment of common area utility bills, operation and maintenance of the central space and domestic hot water heating and air-conditioning systems, snow and garbage removal and the collection of monthly maintenance fees may fall under the jurisdiction of the property manager. There are usually limits on the property manager’s authority. For example, 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. The property manager is not usually responsible for items or operational problems within individual units, 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. These are sometimes referred to as “self-managed” condominiums. Under this management style, 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.
It is important when considering the purchase of a particular condominium, to ensure you are comfortable with the management style, whether it is a contract property manager, or self-managed. This may have implications on both condominium fees and any obligations you may have towards the operation and maintenance of the building.
The condominium unit owner is responsible for some maintenance duties and the condominium corporation for others. These responsibilities vary from condominium to condominium and should be clearly laid out in the condominium’s governing documents.
Maintenance duties for the unit owner can include:
- Internal unit plumbing, appliances, heating air conditioning or electrical systems that are contained in and serve only that unit
- Cleaning window surfaces that are accessible from inside the unit
- Cleaning some parts of the common elements like balconies and patios that are assigned to or exclusive use of, the unit holder
Maintenance duties for the condominium corporation can include:
- Common plumbing, electrical and heating and air-conditioning systems
- Roof and wall repairs
- Windows and doors-repairs and replacement
- Grounds cutting, watering
- Recreational amenities
- Parking areas
- Any other part of the property that is not part of a unit
What insurance will I need?
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 of 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
The unit owner may be responsible for insuring:
- 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
- Personal liability
Should I buy a new or resale condo?
Newly constructed condominiums can be an attractive option for the prospective owner. They offer all of the benefits of a newly constructed building (fresh appearance, modern fittings, surfaces, elevators, appliances) while providing unit owners with the chance to customize their units.
You can purchase a new condominium from the developer either before or during its construction and well before the condominium corporation is formed. A developer may have some unsold units available after the condominium has been completed and registered. In some market conditions, a developer may wait to sell a majority (or all) of the units before registering the condominium corporation or starting construction. Deposits are typically required to secure, or reserve, a condominium unit in a new development.
Advantages of buying a new condominium may include:
- A lower purchase price (depending upon market conditions)
- More choice of locations within the building (if applicable)
- A broader range of options and/or upgrades
- Newer buildings have less risk of having to undergo costly, noisy and intrusive repairs and renovations
- New home warranty protection
Disadvantages of buying a new condominium may include:
- Because construction may not have started, you cannot “see” what you are buying and must rely on artist sketches and floor plans (which may change). Be sure to have the unit’s boundaries, location, finishes, materials, chattels, etc. clearly specified in the purchase agreement.
- Your initial deposit will be tied up for the duration of construction.
- Financial institutions may not give you a mortgage on an unregistered condominium.
- Construction of your unit may not be completed by the expected date.
- You may move into your unit while construction continues in others-this can be noisy and disruptive.
One of the advantages of purchasing an existing condominium is that you get to see the unit, building and grounds before you make your purchase. You also have the opportunity to meet other unit owners, speak with the Board of Directors and ask questions to the property manager. Consider the age of the building and what repairs have been made and when. Ensure that the condominium is well maintained and managed. All of this will provide you with valuable information as to whether or not the condominium is right for you.
When making an offer on a re-sale unit, ensure it is conditional upon obtaining, and having the time to review, the corporation documents available to the purchaser under provincial legislation, including an estoppel or status certificate. There may be a fee for this certificate, but it will give you the opportunity to review information including the condominium’s governing documents, financial statements and insurance coverage. It is important to thoroughly review these documents, as once you sign the offer to purchase you are contractually bound and cannot change your mind if, for example, you later find out the condominium does not allow pets or requires major repairs. In Alberta, there are services available to help you with the review of condominium document packages. In other provinces you should ask your lawyer or notary to help you review them.
Provincial new home warranty programs do not protect deposits made when buying a re-sale condominium and won’t provide protection for construction defects once the applicable warranty periods have expired. Therefore, it is important to have the purchase of the unit contingent upon the satisfactory inspection of the unit and building by a qualified home inspector, professional engineer or architect.
Advantages of buying a re-sale condominium may include:
- You get what you see.
- There are no lengthy waiting periods before you can move in unless provided for in the condition of sale.
- Deposits are often much lower for re-sale purchases and there is no GST.
- You can check out the condominium “community” in advance to see if the corporation is well run and the people who live in it are compatible with your needs and lifestyle.
- Older condominiums can have larger unit sizes.
Disadvantages of buying a re-sale condominium may include:
- Fewer options with regard to choice of unit (within the building), decorating, or upgrades.
- Older re-sale condominiums may require more maintenance and repair than new ones.
- The amenities that you may find desirable (e.g. a workout room or whirlpool, high speed Internet connection, security features) may not be available.
- Older resale units may not be as energy efficient due to different construction standards in newer buildings.
- Major repairs may be coming due that will require extra charges to the unit owners if the reserve fund is underfunded.
- You will only receive the portion of the new home warranty that has not yet expired.
What is included in my condo fees?
Unit owners pay a monthly condominium fee to cover their portion of the operating expenses of the common property elements. A portion of this fee is allocated to the reserve fund that is created to ensure that there are sufficient funds available 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 of condominium employees (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
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 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 resale condominiums, check the estoppel or status certificate. For new condominiums review the disclosure statement. An important part of the operating budget is the reserve or contingency fund.Top
What is a condominium 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. The studies are conducted by professionals capable of assessing the condition of the common elements of the building, estimating remaining life spans and the related repair and/ or replacement costs. Based on their observations, the reserve fund study professionals estimate the monthly or annual contributions necessary to fund the long-term renewal of the common elements. After receiving 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. In some provinces this is mandatory, while in others it is optional.
You do not want to move in your new home only to discover that the reserve fund is under funded and major repairs are required. This could mean a significant increase in condominium fees or the levying of charges, commonly known as special assessments, to the unit owners by the condominium corporation to pay for the needed repairs. Special assessment charges can be high depending on the type of work required. Ensure you obtain and review either the disclosure statement or the estoppel or status certificate to determine the current state of the reserve fund.Top