You often hear people who own condo units complain about their monthly ‘fees’ being too high. While it may be common knowledge that the vast majority of condominiums charge unit owners monthly common element fees, many property owners still don’t quite understand what they are being charged for and how these costs are apportioned. Prospective buyers and unit owners need to be aware of these common element fees, typically referred to as ‘condo fees’ since they make up a continued and sizeable cost of living in a condominium building.
Common Element Fees In Detail
Common expense fees are essentially monthly charges unit owners are required to pay to their condominium corporation for the proper operation of their building and its continued upkeep. Each condominium building has different features and budgeting criteria. These common expense fees can cover a variety of items such as: concierge and cleaning staff; on-site recreational facilities; hydro; gas; water; insurance; tax payouts; legal and accounting costs; and reserve fund contributions.
These costs are dependent on the type of condominium building, its size, lifestyle furnishings and budgetary requirements. In most cases, even before a condominium property is completed, the builder will have created financial documentation that obliges buyers to commit a certain monthly amount to get the condo corporation off to a positive start. Once the development is registered and turned over to the first wave of buyers, the continued collection of the common expense fees and the setting of a maintenance budget for these fees is set by an elected board of directors.
Generally, condo fees increase on a yearly basis at the rate of inflation. Each unit owner’s rate monthly contribution amount differs due to the size of their unit and is apportioned on a percentage basis. It would seem logical then that the bigger the unit, the higher the monthly condo fee would be.
In Ontario, a portion of the common element fees are apportioned into a reserve fund for special assessments on the condominium building should there be any large-scale repairs, such as roof replacements and elevator maintenance, or instances where a sizeable portion of money is needed for emergency purposes such as flood or fire restoration. A reserve fund study must be completed every few years in order to assess the financial health of a condominium building and its ability to handle a sudden depletion of these funds. Should the reserve fund be deemed insufficient, a board will likely increase the monthly condo fees to offset the risk of capital depletion.
At both the pre-construction and resale stages, prospective buyers should be aware of the common element fees and where to find information on their apportionment. For pre-construction projects, buyers need to obtain the most up-to-date disclosure statements from the builder and be given 10 days to review the documentation to their satisfaction. The disclosure statement will provide a draft budget and proposed legal documentation setting out how the costs are to be split by the prospective unit owners. Pre-construction buyers need to be aware that these documents are financial forecasts and can be subject to change, especially if a development is years away from being completed.
For resale properties, obtaining a status certificate is an important first step to determining the current financial health of a property. A review of the budget, financial statements and reserve fund study will help inform buyers of the building’s need for repairs and anticipated upkeep needs.
Owners contemplating selling their units should also obtain a copy of their status certificate before contacting an agent. It will provide a backdrop for them to assess the marketable value of their home when meeting with an agent. In addition, once owners have committed to selling their unit, they should contact their condominium corporation’s management to give them notice of when their sale will finalize so that their common expense contributions are pro-rated to the day of their sale.
Disclaimer: Information made available on this website in any form is for information purposes only. It is not, nor is it intended to replace, legal advice. Contact Chu & Huang Law to discuss a specific legal issue and please note that contacting Chu & Huang Law, on its own, does not create a lawyer-client relationship.