- Buying a Condo?
- Condos' Financial Structure
- Owners' Money Facts
- Owners’ Meetings and Voting
- Boards of Directors
- Owners' Rights and Responsibilities
- Managers and Management Companies
- Common Problems of Condo Living
- Condo Act, Declaration, Rules, and By-Laws
- What Should Be Done to Improve Condo Governance and Help Owners?
- FAQs About Your Building & Your Unit
- Condo Auditors & Lawyers
- Condos & Insurance
- Tenants & Landlords
- Are Condos Family Friendly?
- Links and Bibliography
Owners' Money Facts
This section begins with maintenance fees and special assessments that are the two main sources of expenditures for condo owners--although special assessments are last resorts. Other issues follow in subsequent sections.
Maintenance fees, or condo fees, cover a condo’s expenditures and reserve fund. Fees are akin to a rent for services received and a savings account for future repairs.
Fees paid by suite or unit owners are originally predetermined by builders or developers and appear in a schedule of the declaration--at least, in Ontario. Each unit, generally based on its size, parking space and locker, is allocated a percentage of the common expenses. All percentages in the declaration’s schedule have to add to 100%. (Click here for What’s a Condo Declaration?)
A budget is drawn describing and adding up all expenditures that the condo corporation will incur in its first year. Each suite is then assessed its annual proportion of these expenditures. For example, a condo will spend $1M in its first year. A small suite that has been assessed as having a 0.12 share will have an annual fee of $2,000 or $166.67 a month. So, each month, this suite will pay $166.67 to the corporation, via cheques, post-dated cheques, and preferably pre-authorized payments.
Fees will remain the same the following year if the budget does not change. If it increases by 2%, all owners’ fees will increase by 2%.
Fees are paid at the beginning of each month. In Ontario, when an owner has failed to pay his or her fees, it is advisable that the management contact that person by phone, if possible, or by letter, within the month. But, after 2 months of unpaid fees, a letter of intent to lien is sent, and if the owner does not pay up immediately, a lien is registered to the unit before the end of the 3rd month.
Owners should never stop paying their fees unless they are in financial difficulties: But they have to discuss this with the manager--and have in writing any concession made!
Under no circumstances should owners stop paying their fees even if they are not receiving services to which they are entitled--otherwise they risk having a lien placed against their unit. Liens have to be avoided at all times: They are costly.
Several letters have been received from owners whose fees increased substantially one year or two after they moved into their new condo. This is extremely common because, in their advertisements, developers nearly always advertise fees that are lower than they will be. Low fees are a good selling point!
But the end result is that the first real board is then forced to increase fees in order to meet budgetary requirements. Owners beware!
Now, here is a dreaded word and for good reasons.
A special assessment is an additional payment or a levy that a condo board has to impose when unexpected shortfalls or unexpected expenditures occur in the budget, or when an expensive system has to be replaced (i.e., a boiler) and there is not enough money in the reserve fund to cover for it. (Click here for Reserve Fund)
Special assessments are like a fee and are proportional to the % of common expenses each unit has, as per the declaration. Therefore, a smaller suite's special assessment will be lower than the one paid by a larger suite.
In Ontario, special assessments often occur in condos that were built before 2001 when reserve fund studies were not mandated by the previous Condo Act. As a result, developers and boards failed to build up sufficient reserve funds for future replacements and major repairs.
It is the duty of a board to impose a special assessment when necessary and owners have to comply, as is the case for fees. Owners cannot vote on whether or not to levy a special assessment.
However, a board who has failed to have a reserve fund study or has caused the situation that led to the assessment can be voted out by owners at a requisitioned meeting or even sued for lack of due diligence. But this is easier said than done!
If owners believe that the rationale for the special assessment is not well explained or documented, they can requisition a meeting to force the board to discuss the issue. But the board does not have to stop the special assessment. Yet, it would be a disrespectful board who would refuse to clarify the situation.
If, after the meeting, or if the board refuses the requisitioned meeting, and owners still believe that the special assessment is unwarranted (this happens: Click on Horror Stories About Special Assessments), then owners can requisition a meeting for the purpose of replacing the board. (Please read the various issues pertaining to Requisitioned Meetings) Or owners can have recourse to a lawyer in order to get a court order to stop the special assessement pending a review, by using Section 134 of the Condominium Act of Ontario.
Special assessments can’t be levied if there is a large surplus or if the reserve fund is sufficient to cover the replacement. However, if the replacement or large repairs deplete the reserve fund, then the board has to levy an assessment to bring the reserve fund up to date. Or the board may choose to raise fees in order to top off the reserve fund.
Special assessments can’t be levied for repairs that are merely cosmetic to embellish a condo or to accommodate someone’s taste for luxury!
Special assessments require careful consideration by boards and adequate communication with owners, including letters, advance notices, and even an information meeting to explain the necessity as well as what would happen without this assessment.
There are various ways of levying an assessment: It can be added to the fees for an X number of months (less painful approach), or paid in 2 to 4 instalments, or in one lump sum payment (most painful).
Since this webite had been posted, many owners have sent letters describing abuses in the ways in which special assessments occur. Please click here to view these letters: Horror Stories About Special Assessments.
As soon as special assessments are contemplated, they have to be noted in status certificates so that potential buyers are made aware of this forthcoming expenditure.