Condominium living provides many amazing benefits: affordability, less maintenance, security, and sometimes even amenities right under your own roof.
However, there are aspects of condominium living that you must consider before you dive into residential real estate ownership and more particularly, condo life. For example, shared ownership, governing bylaws, and annual reports.
What does this mean? Before you consider purchasing a condo, let’s explore what a condominium actually is, how it’s governed, and documents you need to protect yourself.
What is a Condominium?
A condominium is a unique type of shared property ownership. When you purchase a condo, you have ownership of the individual condominium unit and shared ownership of the common property held by the condominium corporation.
Any building or set of buildings can be condominiumized if structured as such by the developer or subsequent owners (called a “conversion”). High-rise apartment-style condos, townhouses, and lofts are the most common, but even detached homes can be set up as condominiums. This kind of condominium is called “bare land” and the boundaries of the unit are denoted by survey markers outside of the building instead of the finish of the condominium unit. Before you buy, it is essential that you understand the ownership structure of the property.
The essence of a condominium is that there are individual units owned by the owners, and shared property which is owned and maintained by the condominium corporation. The owner of each unit also owns a certain number of shares in the common property (often referred to as “unit factors”) which is usually (but not always) determined by the proportionate share of the owner’s unit in relation to the entire condominium project.
In a traditional condominium, everything beyond the interior finish of your walls is considered common property and is shared equally with the other unit owners. In a bare land condominium, your unit may also include your yard.
Common property can include:
- Lobby and hallway areas
- Landscaping and sprinklers
- Fitness centre and other shared space
- Plumbing, wiring, and furnaces
- Roadways and parkades
Because you share these common areas with many other owners, you must help maintain and repair them. This is where condominium contributions (also known as condo fees) come in.
Monthly condo fees are a set cost of money that are instituted to pay for things like:
- Maintenance, repair and replacement of common property
- Administrative fees
- Property management
- Reserve fund
The budget for the condominium corporation is determined by the condominium corporation’s board of directors. The board of directors is elected each year by all of the owners of the condominium corporation at an annual general meeting, held in accordance with the Condominium Property Act and corresponding regulations. The budget is voted on at the AGM and the condominium fees are apportioned for payment by the owners, usually in accordance with their unit factors.
Sometimes unexpected expenses can come up that were not budgeted for, such as hail damage to a building envelope or floods. In these cases, the owners may vote to have a special assessment to pay for that expense if the reserve fund is not sufficient to cover the cost. Special assessments can be very costly, so it is important to make sure that there is not one pending when you purchase a unit. You can also look into getting insurance coverage to defray the cost to yourself personally.
The Condominium Corporation
Under Alberta law, every condominium development must be registered with the Land Titles Office. Upon registration, the condominium corporation is created as a separate legal entity whose ownership consists of everyone who owns a unit in the condominium development. The condominium corporation is the owner of the common property.
The Condominium Board of Directors
Each year, the owners elect a group of owners to manage and run the condominium corporation, called a board of directors.
The board of directors is responsible for:
- Maintaining, repairing and replacing common property
- Enforcing condominium by-laws
- Assembling financial documents
- Conducting general meetings
- Maintaining all documentation of the condominium corporation such as minutes, director’s resolutions, etc.
So now that we know a little bit more as to how a condominium is structured and how it’s governed, let’s talk about what you need before you purchase a condominium.
Documents You Need Before You Consider a Condominium Purchase
What Is an Estoppel Certificate?
An Estoppel Certificate is a necessary document in any Alberta condominium real estate transaction. It is a “status report” which must certify the following information:
- The current condominium fees
- The condominium fee payment schedule
- Whether the condo fees are unpaid and in arrears
- If there is any interest due on unpaid fees
- Any pending or unpaid special assessments
When Is an Estoppel Certificate Required?
It is necessary to obtain an estoppel certificate to know the current state of fees: unpaid contributions follow the unit. If there are unpaid condominium fees or special assessments that the seller does not pay, you will be liable for these costs as the new owner. A good lawyer will make sure that the seller pays the contributions they are responsible for as part of the closing process. The estoppel certificate gives a buyer assurance that they will not inherit any unsettled financial obligations of the previous owners.
In addition to the Condominium Property Act, the condominium corporation and board of directors are governed by the registered by-laws unique to each development. The by-laws contain necessary information about how the condominium is governed, rules, and restrictions. The by-laws can include things like:
- Pet restrictions
- Certain age restrictions
- Noise restrictions
- Aesthetic/design considerations
- Penalties and complaint process
- Common space rules
You should carefully review the by-laws or pay a professional to do so before you buy a unit. It is important you know if that particular condominium development aligns with your lifestyle and your intended use of the unit.
Reserve Fund Report
When a condominium owner pays their monthly condo fees, a portion of these funds is deposited into a separate account, called a reserve fund. This fund covers the cost of major repairs and replacements to common property, things like roof replacement, landscaping, HVAC issues, etc.
It is important to know how much money your condominium board has in its reserve fund. If it is underfunded, chances are they may ask all owners to contribute a large sum of money when a large repair or maintenance item is needed as a special assessment.
Budget & Financial Statements
Every condominium corporation is obligated to prepare a budget and financial statements on an annual basis. This provides all owners with visibility into how condominium fees are being spent, what is maintained, plans for future maintenance and more.
As a potential buyer, it is important that you view these documents to determine whether the condominium corporation properly tracks revenue and expenses, and whether they are deferring needed maintenance items. If these are not balanced, there may be cause for concern.
Annual Report & Minutes of AGM
Every year, under the Condominium Property Act, condominium boards are obligated to hold an annual general meeting. At this meeting, all owners come together to discuss the condominium property as a whole: issues, complaints, upcoming maintenance items, etc. They are also required to prepare a formal report and meeting minutes for distribution to each owner.
As a potential buyer, it is wise to read this report before you consider ownership. This report can give you insight into the condominium itself: if there are any major interpersonal problems with certain owners or tenants, how the owners relate to each other, and other rules and regulations you need to know.
Seek The Help of a Lawyer
Before you purchase a condominium, it is important to be fully informed. Knowing what to look for will save you from making a hasty decision and alleviate any headaches down the road during the purchase process and beyond.
At KH | Dunkley Law Group, we will make sure that you are set up for success. If you are purchasing a condo, we will obtain and review estoppel certificates and insurance certificates to identify potential problems, and discuss everything thoroughly with you. We will communicate with the condominium corporation on your behalf, and if there are any problems such as condominium fee arrears, we will take the appropriate steps to ensure all fees are cleared up and all problems resolved before you take ownership. If you are selling a condo, we will coordinate with the condominium corporation to fulfill your obligations to the buyer to ensure a smooth closing.
This memorandum is for informational purposes only, does not constitute legal advice or an opinion, and does not create a solicitor-client relationship. This is an overview and is not intended to be a complete and exhaustive explanation of the concepts covered. This information may become inaccurate based on passage of time or changes in the law. Nothing herein should be relied upon without seeking the advice of a lawyer.