When buying or selling a re-sale condominium, the most important document in the deal is the status certificate. It answers important questions that matter to most buyers, such as:
- Do I own the parking or locker unit?
- Are pets permitted in the building?
- When is the pool open for swimming?
- How much money is in the reserve fund to look after future repairs?
- Are there any special assessments being charged because there is not enough money to pay for needed repairs right now?
- Is anyone suing the condominium and is there enough insurance to pay for it? For example, someone slipped on the ice that was not properly cleared.
- Who is the property manager, providing guidance to the board of directors?
Most condominium deals are conditional upon the buyer’s lawyer being satisfied after reviewing all of the condominium documents, including the status certificate, the declaration, by laws, rules, most recent budget and reserve fund study completed by the condominium corporation. Even though lawyers are not accountants or engineers, they are asked to provide an opinion to the buyers as to the financial well being of the building.
In my experience, there are no easy rules to provide guidance. A reserve fund may have over a million dollars in it, but the building may need over 2 million in repairs. Another building may only have $200,000 in the reserve fund, but they may have completed all necessary repairs that may be needed for years to come. You get the picture.
There have been stories recently about how CMHC had labelled some condominium buildings as having questionable financial statements, and would not provide mortgage insurance to anyone buying in those buildings. Buyers who are applying for an insured mortgage must make sure that they do not waive any financial condition regarding a condominium re-sale purchase until they know for sure that the insurance company is satisfied with the building.
In other cases, there may be no option for a board of directors but to go out and borrow money to complete necessary repairs when there is not enough money in the reserve fund. The owners can then pay it back over time through increases in the maintenance fees. This does not necessarily mean that the building is being badly managed. As long as there is a plan to get it to financial stability.
If you are selling a unit and there is a low reserve fund, or a potential for a special assessment to pay for needed repairs, either adjust the sale price to reflect for this, or negotiate a holdback on closing for 1-3 years, so that if a special assessment is levied later, it would come out of the holdback amount. If it is not levied, then the holdback would go to the seller at the end of the holdback period.
Although it is not mandatory for a board of directors to use a management company to assist them, I am suspicious if there is no management company. Board members are generally unqualified to make these types of decisions or handle large budgets. But be careful who you hire. The story of Channel Property Management and Manzoor Khan, the property manager who allegedly defrauded several condominium corporations out of millions of dollars in 2011 continues to haunt the owners in the affected buildings, who are still having difficulty selling their units today.
In general, townhouse condominiums do not require as large a reserve fund as a highrise condominium, because they will not have as many future repair requirements, other than the repair or replacement of the roof. The unit owners are responsible for everything inside their units. It is thus important for everyone buying a townhouse to also include a condition for a home inspection, to check everything inside the home before you commit to buy. I know many buyers who also conduct a home inspection in a highrise condominium, not only to look for problems with the HVAC or other system inside the unit that the buyer will be responsible for, but in some cases to also inspect the building as a whole to determine if it is also being carefully maintained.
Sellers, find out what your status certificate will say before you put your unit up for sale. Buyers, ask what is in the status certificate because this will form the basis of your continued enjoyment of your home after closing.
Click here to read the article: http://www.thestar.com/business/personal_finance/2014/02/14/why_a_condos_status_certificate_is_important.html
My Law Practice
I have received many inquiries about my law practice, providing legal services to real estate buyers, sellers and investors. Working with Real Property Transaction Centres, I am now able to close real estate transactions throughout the GTA. If you require any assistance on a transaction that you are working on, please email me at firstname.lastname@example.org
If you or your clients are looking for a written quote, please visit www.realproperty.ca and search under “How much does it cost” or contact Suzanne at 1-877- 219-9618, ext. 231.
About Mark Weisleder
Mark is a lawyer, author, instructor, Toronto Star columnist and keynote speaker for the real estate industry.