Canadians in increasing numbers are choosing condominiums to meet their housing needs. From younger people buying a townhouse condominium as their first home to empty nesters downsizing into a detached unit, to seniors retiring and purchasing an apartment style condo, more and more people are finding that condominium ownership most appropriately fits their lifestyle.
Buying a condo is not as simple as buying a single family home. There are more details to be dealt with by both the purchasers and sellers of condominiums. To help understand some issues involved in a condominium transaction we have provided some useful information below.
WHAT IS A CONDO?
Although condominiums are very popular and have been around for several decades there still remains some confusion over what a condominium is. The term condominium refers to the type of ownership of a particular property not to the style. Basically with a condominium you own your own dwelling from halfway between your exterior or dividing walls to the inside. You may or may not own the land underneath. Any other area within the legal description of the condominium development will be owned jointly by all of the owners within that particular condo. So more succinctly you own the inside of your apartment or townhouse and you and your neighbours all own the common elements outside your four walls (i.e.: outside greenspace, parking lots and roadways, common hallways, etc.).
A condominium therefore can be any style. It can be a single detached or semi-detached bungalow, bi-level, split level or two storey. Likewise it can be any style of row housing or it can be an apartment. Even commercial buildings can be condominiumized. Basically it is a form of private ownership of a portion of something bigger, which is commonly owned.
However, there are different types of condominium ownership. In Saskatchewan there are primarily two categories of condominiums, bareland and standard. In a bareland condo you own the land your individual housing unit is situated on and exterior maintenance may or may not be your responsibility. This is most typically a town house type of development where there are no stacked units, that is, one on top of another. In a standard condo you do not own the land under your unit and exterior maintenance is always included as part of what your condo corporation will do for you. This type of condominium occurs where you have an apartment building or townhouses that are built one on top of another. Furthermore, each condominium development is different in what services will be provided by the condominium corporation as part of your condo fees.
In any event, it is your responsibility as a buyer to determine exactly what type of condo you are purchasing and what is included in the price and for the condo fees you are paying. It is wise to use a REALTORÃ® for your purchase as they will then take care of all of this for you to insure you do not make any expensive mistakes. In addition, because condominium purchases can become quite complicated it is advisable to hire an agent who has the specialized knowledge to adequately represent your interests.
CONDOMINIUM CORPORATIONS AND CONDO FEES
As discussed above, when you buy a condo you are not only purchasing your own unit but you become one of the joint owners of all of the common property owned by your condo association. Your condo association is actually a registered corporation which will own all of the common property within your condominium project. This corporation will be controlled by the owners of the individual units within the condominium. The Condominium Property Act governs how condo corporations operate in the Province of Saskatchewan. This legislation guarantees that annual meetings must be held, that a condominium Board must be elected by and from the owners, that each owner has a say (i.e.: a vote at the meeting) in how the Board and corporation functions, that at least a majority of a general meeting quorom is required for rule changes, etc. The Act is designed to insure that all owners have an opportunity to exercise some democratic control over the association they are part of. It also defines and limits the responsibilities of the Board to protect against fraud, mismanagement or a rogue Board turning into a dictatorship.
Usually, each owner will have one vote for each condo unit they own within the complex. An owner can become involved as much or as little as they like in their condo corporation. Some people will want to be president of the Condo Board and others won’t even attend meetings. However, since you have a vested interest in the decisions made at your meetings it is always a good idea to at least attend even if you do not want to get involved beyond that.
In any case your Board will be charged with the responsibility of managing your condominium corporation. They can choose to self manage if it is feasible in say a smaller condo project, but usually they will hire a professional property management company. This property manager becomes responsible for the day to day running of your condo complex. So these are the people who collect your condo fees, hire the services required and pay the bills. Your Board oversees the job that your property manager is doing and can bring suggestions to the owners at a meeting regarding the hiring or firing of the manager and the owners then decide what they want to do.
Your Board will also make financial reports to the owners at general meetings. These reports will allow the owners to make an informed decision with regards to the amount of the condo fees they are paying and the services received for these fees. Condo fees are made up of two parts. First there is a portion which is allocated to operating costs. This is an assessment to each owner to pay for the provision of the services they received. Examples would be snow removal, grass cutting, exterior maintenance, any utilities that are provided, insurance on buildings, etc. If the cost of providing those services rises generally your condo fees will also increase. Of course your operating fund may have a surplus which will offset increases for a time but ultimately the owners will decide whether a condo fee increase is warranted to pay for services. Owners of course could also choose to reduce the level of service they receive or have their Board or property manager shop around for savings from other suppliers.
The second part of the condo fee is an allocation to a reserve fund that is established to set money aside for anticipated capital expenditures. Unlike the operating account the reserve fund is not specifically dedicated to any particular expense but is, as the name implies, a reserved amount of money that will be used as necessary for unusual, one time or long term types of expenditures. Examples are many but take the case of a boiler in an apartment building or shingles on townhouses. At some point you know these things will have to be replaced and any prudent condo association is going to plan ahead by putting money aside each month to build into an adequate amount to pay for these large expenses once they arise. Unfortunately, not all condo associations do as good a job as they should in pre-planning for such expenses and when they do occur they discover the reserve fund is inadequate. This will result in either a special assessment to each owner to make up the shortfall or substantially increased condo fees to replenish a depleted reserve fund. Either case is not real desireable, so avoidance of such problems through sufficient contributions to the reserve fund over time is preferable. Fortunately, most condo associations in Regina have adequate reserve funds. In addition, the Condominium Property Act is being revised and it will contain a requirement for a regular reserve fund study so condo owners can be assured that their reserves are adequate or at least start to plan ahead now if it is determined that they are not.
The thing to understand about condo fees is that no one is making money on them. The money has specific purposes for use to benefit the owners either through providing services or replacing things that wear out. The real attraction for most condo owners is the fact that it provides an easier lifestyle where yard and exterior building maintenance are done for you. Furthermore, this comes at a savings due to the economies of scale. It only makes sense that there is a savings by many owners pooling their money to obtain services for all. If you consider the services that a condo owner receives relative to the costs, in most cases condo fees are a bargain. Homeowners often do not appreciate the cost of exterior maintenance like replacing shingles, fixing sidewalks and driveways, putting up new eavestroughs, planting and maintaining trees and shrubs, exterior painting, watering lawns, etc., etc. And never mind the cost of a storage shed to keep lawnmowers, rakes, shovels, snowblowers and other expense tools and equipment that condo owners do not have to bother with. If a homeowner amortizes all of these costs (and this list is not exhaustive) into a monthly amount they would soon find that condo fees are a huge saving.
Another thing to remember about condo fees is that they will pay for different things in different condos. That is to say that some condo fees will pay for more services than others, so it is important to understand what you are getting for your money. For example in some condos your fees will pay for things like sewer and water and cable TV, while in others none of these things are paid for. Even things like exterior maintenance are not automatic. Thus you must determine what you are getting for your monthly charge before you can make an informed decision as to whether the fees are reasonable or not.
Finally, don’t forget that condo fees do not cover your property taxes. Your condo fees pay only for the services provided and into the reserve fund. Your property taxes are above that.
RULES, REGULATIONS AND BYLAWS
Another important issue with regards to condominium ownership are the rules that govern the use of your condo. Each condominium corporation will have rules, regulations or bylaws that determine what an owner can or cannot do in or with their unit. Beyond the rules governing how your condo board and association must be run there are specific rules regarding the use of common property and also what an individual owner is allowed to do with his or her individual property. Because many elements in a condominium are jointly owned and because what one owner does with their property may impact the other owners in the development, it is necessary that each condominium corporation specifically sets out rules that will protect the common interests of the majority. Typically, the good of the whole (i.e. the condo corporation) will take precedence over the rights of an individual. Thus there will be some restrictions on use that individual owners will agree to in order to protect the integrity of the condo complex. Generally speaking you are given fairly wide latitude with regards to useage of your condo unit on the inside but are quite restricted with what you can do outside of your unit. Most of this is common sense stuff but to insure that everyone co-operates for the good of the overall condo community, rules are put in place.
So inside your property you can do pretty much as you please provided it is not dangerous (i.e. storing dangerous goods or noxious chemicals), causing a nuisance (loud music, parties, etc.), or alters the physical structure or exterior appearance (moving load bearing walls or hanging offensive or unsightly things in your windows, for example). As previously stated all pretty much common sense types of things.
Outside your unit you may have many more restrictions. Here generally you are allowed to do things that would be considered as being for the beautification of the property. This would include such things as putting out flower pots or hanging Christmas decorations. Likewise you are allowed to place furnishings and decorations on a deck or a patio that are appropriate. Things such as patio furniture, hanging or potted plants, barbecues, etc. are usually allowed but could be subject to restrictions. Likewise the installation of exterior equipment such as a satellite dish, most condos will allow them but they must be placed unobtrusively so as not to spoil the exterior appearance of the complex.
Then of course there are general rules regarding things such as pets, visitors, the number of occupants allowed per unit, use of common areas and in some cases even on the age of the owners. Each situation is slightly different with some condo associations being very restrictive and others quite lax. As a potential purchaser of a condo it is your responsibility to check out all of the rules and regulations to insure that you will be able to live within those requirements. Similarly, if you are already in a condo you will want to attend any association meetings to insure that your concerns are being heard and that changes are not made without your input.
DISCLOSURE REQUIREMENTS AND ESTOPPEL CERTIFICATES
As is obvious from some of the discussion above there are additional important considerations when buying a condo as opposed to purchasing a single family home. A prudent buyer must investigate all of the issues with regards to the condominium corporation that they are going to be a part of. This will include such items as the financial strength of the corporation particularly with regards to the adequacy of the reserve fund and the rules and regulations governing an owner’s rights, privileges and use of their unit. That is why when you write an offer on a condominium you must make it subject to obtaining all of this information as well as an Estoppel Certificate and confirmation of insurance. An Estoppel Certificate addresses issues that would not appear elsewhere in any of the financial information or the rules and regs. For example the financials may show a healthy reserve fund but if the association has approved an expenditure from that fund that has not yet occurred but is soon going to, it is important that you are aware of that upcoming expense. An Estoppel Certificate will advise of such approved but not yet spent expenditures. The Estoppel will also confirm the amount of condo fees charged monthly to the unit so you are assured that the sellers have represented those costs accurately. It will also advise if there are any outstanding fees owing which is very important for a prospective buyer to know as they will become liable for any outstanding amount once they have purchased. So for example if the current owner owes the condominium corporation say $700.00 and you don’t know that prior to purchase then you will be responsible for paying that amount and there is little you can do about it.
When purchasing a brand new condo the disclosure information you will be seeking will be considerably different. For example you will not have to worry about unpaid condo fees but you will need a guarantee that the developer has secured adequate financing (if required) to complete the project. The developer will not be able to provide you with financial statements of the condo corporation as none yet exist. However, you are entitled to see a budget which projects the amount of the condo fees and what those fees pay for. The budget then also helps you to determine if the fee is reasonable based on the numbers presented. If you believe that the developer has understated the budgeted expenses then your expectation would be a fairly certain and immediate increase to condo fees.
In any case the disclosures that you should obtain are laid out in legislation via the Condominium Property Act. However, to insure compliance with the Act and avoid future litigation a seller should always have a knowledgeable REALTORÃ® handling their transaction. Similarly, using a REALTORÃ® experienced in condominium sales will provide a buyer protection from making a mistake or more importantly from an unscrupulous seller. An uninformed, negligent or dishonest buyer or seller will certainly cost either or both parties in the long run.
MONEY WELL SPENT
Sure you can think you may be saving money by trying to buy or sell a property without a REALTORÃ® but experience has shown that the balance, fairness and advice that REALTORsÃ® bring to the market results in a more equitable and trouble free transaction for both parties without the risk and liability involved in trying to do it yourself. Particularly when purchasing a condominium are a REALTOR’sÃ® services required and in this case it must be a REALTORÃ® with experience in condominium sales. The discussion above raises some of the reasons this is so but there are many others. For example, knowing what disclosures you need as a purchaser and obtaining all of them is only one part of the exercise. You will then want someone knowledgeable to review them with you. Are you qualified to accurately determine whether a reserve fund is adequate or not or if the condo corporation carries sufficient insurance or if the projected budget is reasonable? Similarly for a seller do you even know what documentation a purchaser is going to require and have you obtained as much of it as possible to review yourself and provide to a purchaser in a timely manner to expedite the sale? Are you aware of potential obstacles which may arise from the disclosure package and if so are there steps that you can take to remove them prior to them jeopardizing your sale? What about value? Are you sure that you know what your condo is worth? Sure you may have heard stories about what some people say other people got for their unit in your building but how accurate is that third or fourth party information? And even if you do know generally what condos are selling for in your complex what about competition outside of your development? Maybe prices have gone up significantly since the last unit sold in your building and without knowing the true market value you are leaving thousands of dollars on the table. Likewise for buyers, do you feel confortable enough with your real estate market knowledge to assure that you are paying a fair price? In reality the condominium market is very volatile and subject to many variables that only a REALTORÃ® with extensive condominium experience is truly qualified to assess.
Dale Ripplinger has sold more condominiums than any other REALTORÃ® in the history of Regina. They don’t call him The Condonator for nothing. Don’t make a mistake. Call The Condonator.