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

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!

Special Assessments

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.

Liens

Owners should avoid liens because they are costly

 Person with Dollar Sign Another Person with Dollar Sign

What is a lien? A lien is a legal document sent to owners who have failed to pay what they owe the corporation for arrears in common elements. What can this include?

  • First, arrears in monthly condo fees;
  • second, when an owner fails, after due notice, to carry out necessary maintenance and repairs that are owners’ responsibility, the corporation has to step in and do this maintenance and repairs in order to prevent deterioration of corporation assets, or injury, or danger of damage to other units. The resulting sum of money, if not paid, constitutes an arrear in common elements, provided the owner was notified and given reasonable time to attend to the issue;
  • third, insurance deductibles as a result of damage to common elements or another unit may also fall in this category, depending on by-laws or declaration. (Click here for Standard Unit By-Law; also click here for Insurance)
  • fourth, certain legal fees. But see below.

The Proper Procedure for Liens

Here is an example of how the most common type of lien is processed in Ontario:

Owners Tomtoms have not paid their condo fee for the month of August—all cheques are due on the 1st of the month. A few days later, the manager phones the Tomtoms to remind them. Still, they do not pay the September month either so, on September 10, the manager sends them a reminder note to their address of residence. Nothing happens.

By September 21, the management company sends them a letter advising that a lien could be registered against their suite and what the financial consequences will be. Still, the Tomtoms do not pay for October either. That’s 3 months of unpaid condo fees.

At that point, the condo lawyer has to issue a Notice of Lien—and there are legal fees attached to this notice. The lien is registered 10 days later if the owners have not yet complied. Had the lawyer or the management waited longer, the lien would not cover the first month that was skipped. In other words, a lien has to be registered before the period of 3 months expires if the condo is to recover all arrears.

Only three months of arrears are covered by a registered lien in Ontario. This is the reason why management companies have to be vigilant concerning the timing of arrears.

Now, let’s assume that the Tomtoms pay after the lien has been registered. What do they have to pay?

  • The arrears in common element fees
  • Interest on the arrears
  • Legal fees

Let’s also assume that three months later, the Tomtoms begin defaulting again. The process has to start all over again and a new lien has to be issued. But this time, management does not have to wait 3 months: Another lien can be issued after a warning during the first month of default.

When owners who are in arrears are in the midst of selling their unit, the status certificate will indicate the arrears and all amounts due as well as the lien. Upon closing, either the seller or the buyer will have to pay: A condo corporation always has precedence over most other creditors, including mortgage lenders.

The same process would happen in a case of owner’s bankruptcy: The condo corporation will have precedence over most other creditors, with a few exceptions, such as property taxes.

It is advisable to send a copy of a lien to institutions or persons who provide the mortgage as these institutions may pay all arrears in order to prevent the next steps from occurring.

What Liens Cannot Cover

Liens cannot cover:

  • fees that a board or a manager artibrarily charge and that are not contained in the Declaration, by-law, or rule;
  • "punishment" fees that boards/managers arbitrarily charge when someone (generally someone they don't like) breaks a rule;
  • rental fees for lockers, etc.
  • added fees for owners who pay by cheques or post-dated cheques rather than by pre-authorized payment;
  • for letters that lawyers send to frighten owners who question boards' lack of follow-up on problems

In additon, liens cannot be registered against a suite within the first month of arrears. Nor can liens be registered without prior warning. And these warnings should first come from the manager or the board in order to save in legal costs.

There is a great deal of abuse of liens--as reported in so many letters received. Please click here for Abuse of Legal Letters and Liens.

Garnishing Tenants’ Rent & Power Of Sale

When non-resident owners do not pay their fees, even after a lien has been registered, their tenants’ rental fees may be garnished by the condo corporation. However, this is an option that is rarely taken.

A letter has to be sent both to tenants and owners stating how much tenants have to pay the condo each month and how much (what is left) goes to the landlord. Tenants lose nothing in this situation but it is a nuisance and it may worry them. This letter is called a Notice of Attornment. If legal fees are involved, they are added to the total owed to the condo.

Tenants who refuse to participate can eventually be evicted after proper procedures have been followed. (The condo lawyer should be consulted.)

Let’s return to our fictive owners, the Tomtoms from above. After a lien has been registered and a reasonable period has passed, the Tomtoms still have not paid what is owed the condo. As they do not have tenants, the next step is to obtain a power of sale.

Power of Sale

A power of sale is obtained by the condo lawyer and served to the owner and mortgage provider, such as a bank. (At that point, the bank may decide to settle the issue and pay up.)

Once the power of sale is served to owners, they often rush to the office with all manners of excuses, good and bad! Unfortunately, condos have by then incurred financial losses and managers cannot accept excuses in lieu of payment!

When owners realize that managers are serious, they usually settle the entire amount by certified cheque. But, at that point, they have unfortunately accumulated interest and additional legal fees.

No one likes to reach the point where a unit has to be sold by the corporation. It is a painful procedure for owners and it represents a lot of work for management and board. This is a legal procedure that has to be followed carefully and involves, among others, obtaining estimates from three real estate agents as to how much the unit is worth on the current real estate market. The suite just can’t “be given away as a good deal” for the sake of expediency. Lawyers should be involved.

At that point, or before, a bank may repossess the unit and deal with the owners. However, the condo corporation has priority and most arrears, interests, and legal disbursements incurred have to be paid to the condo first, with a few exceptions, such as property taxes.

If the defaulting unit is sold, the condo is compensated for everything. The remainder of the sale proceeds is returned to the defaulting owner and other creditors, if any. In other words, a condo does not make any money out of this sale. It just gets back what it is owed.

Why Is a Status Certificate so Important?

The status certificate is a document, as per Section 76 of the Ontario Condo Act, that provides basic and essential information concerning the financial status of a unit and of the condo corporation. Its main focus is to inform a prospective owner of the fees, of any large increase that is going to come into effect, of any special assessment that is being contemplated by the board, and any arrears or lien that a particular suite might have.

In addition, it contains the condo declaration, by-laws, budget, reserve fund, insurance, management contract, rules, minutes of the last annual general meeting, and mention of any lawsuit involving the corporation. his certificate can run into one hundred pages.

Status Certificate

The purpose of status certificates is to allow potential buyers of condo units to have as much information as possible about their unit as well as the physical and fiscal situation of a building. Certificates also allow prospective owners to find out what the rules are, including whether pets are allowed. (Click here for What Are Rules For?)

Status certificates are ultimately boards’ responsibility. Many board members are unaware of this responsibility because this certificate is generally prepared by management companies. It is a good idea for board presidents to check the contents of status certificates, at least once a year, and to do so when the fiscal structure of a condo is about to change or has changed.

Status Certificate and Special Assessments

For instance, as soon as a board becomes aware that a steep increase in fees is forthcoming, or a special assessment will be levied, or a large expenditure will substantially lower the reserve fund, this information has to be included in the status certificate.

When a management company fails to include this key information, the board is ultimately responsible for this lapse. (The board may fire the manager but the damage will have been done.)

This is a problem which happens far more frequently than believed.

What can happen if this information does not appear in the status certificate?

Here is an example:

A prospective buyer obtains a status certificate and, one month after purchase, a special assessment for window replacement is announced. The new owner is asked to pay $3,000, which is the proportion of the special assessment determined for a suite of its size. But there had been nothing about this special assessment in the status certificate: The new owner confirms this with his lawyer and refuses to pay the levy. The manager makes his life difficult and insists that he pay up.

Who is right? The new owner is.

Indeed, it is very unlikely that the board and the manager were not aware, if not of the exact sum, at least that there were serious expenditures forthcoming for large-scale replacements and repairs and that additional funds were to be levied. This should have appeared in the certificate. It if had, the owner might have decided against buying the suite or, yet, might have budgeted accordingly or might have asked for a reduction in the price of the unit.

In other words, failing to announce a special assessment or a steep increase in fees or even an important expenditure against the reserve fund in the status certificate is akin to trying to sell a car with a rolled-back odometer: It constitutes false advertising.

So what happens? Well, the new owner will not pay. Instead, his $3,000 will be added to the total sum levied and will be paid fractionally by all other owners. Or, if the owner has paid, he can go to Small Claims Court to get the money back.

It is important that all prospective buyers obtain and carefully inspect status certificates. They can’t refuse to pay for a special assessment that is clearly announced if they have not read the certificate or have not requested one.  The responsibility of reading it is theirs and their lawyer’s.

In fact, many offers of purchase contain a clause stating that acceptance of the offer is conditional upon the buyer receiving the status certificate and being satisfied with its contents—although it is generally the buyer’s lawyer who examines it, hopefully closely. (Click here for New Vs. Resale Condos)

New owners should always ask their lawyer if he/she sees any problem in the status certificate. In theory, an owner could go against the lawyer if the latter fails to inspect the status certificate carefully and inform the owner accordingly.

Obtaining A Certificate

Who can obtain a status certificate? Anyone can, in theory. However, each unit's certificate may have slightly different contents because a certificate always lists arrears and changes in the exclusive-use common elements made with board approval, for instance. Therefore, in practice, owners who are selling and prospective buyers are the ones who obtain a certificate. Or their lawyers, or real estate agents, or a bank.

One can only presume that, if there is a case of identity theft that is suspected by management, they will refuse to deliver a certificate. Simple curiosity about a suite may not be an acceptable reason to obtain a certificate, but I am not aware of what decision this would entail on the part of management.

Persons who request a status certificate should receive it within 10 days after they have applied and paid for it. The request should be made in writing--in order to protect the owner. (See below.)

Generally, the fee for the status certificate ($100 + HST) is paid to the management company if it is so stated in the management contract. However, one president and his board have renegotiated their contract with the management company: The fee will now go to the condo corporation.

In the past year, several owners have written to report that a manager had refused to provide them with a status certificate until he or she inspected their unit. The manager is wrong: suites are private.

What to do if the Manager does not provide a Status Certificate?

You can still try to sell your unit. Prospective owners should be informed that, when a status certificate is not forthcoming, it should be taken to mean that "everything is fine." Therefore, if the new owner finds out that there was a special assessment right after moving, he or she does not have to pay it.

However, it is suggested here that sellers who have requested a status certificate keep a copy of the requesting letter and provide a copy to the buyer for legal purposes later.

 

Rental Fees, Guest Suites & Party Room Fees

When a condo corporation owns lockers for rental or additional parking spaces, these rental fees are usually determined by the size of the locker and the type of parking space. Managers can determine fees in conjunction with their boards. These are not the same as common element fees: they are rental fees. A contract is signed between residents and the corporation. Owners or tenants pay by cheque or pre-authorized payment.

When residents default on rental fees, no lien can be applied but managers may try to recoup the lost rental fees from deposits or, when tenants are involved, from owners.

Such rental fees are more difficult to recover. Therefore, residents whose payments are late should be immediately warned and, if they do not comply, refused access to the locker or parking spot before the next month begins. Proper contract wording is essential in this respect as is a manager’s vigilance.

The same procedure should take place when residents rent a locker or a parking space from other residents.

Rental fees are generally paid, along with a refundable security deposit (in the event that damage occurs), when guest suites and party rooms are reserved. Forms describe the obligations and rights of residents who use these facilities. 

Rental fees may be included in the declaration. Or, yet, a by-law may be passed in this respect. Fees have to be reasonable. Many condos have rental fees for guest suites or for bowling lanes. Party room fees as well as fees for the theatre or viewing room may or may not apply. They are often levied for parties but not, for instance, when the room is used for individuals who want to study or when residents have social gatherings and meetings among themselves.

The rationale for fees is that the use of these facilities brings additional expenditures to the corporation: When used, these facilities require maintenance and time on the part of staff. Staff has to clean and inspect. The kitchen in the party room has to be scrubbed. Energy is being used. Television and even internet access are paid by the corporation. In addition, guest suites and party rooms are generally used by residents’ visitors.

In contrast, other recreational facilities such as pools are maintained at all times and the water has to be kept warm no matter whether it is used or not.

Refundable Deposits And Payments For Damage

Refundable deposits may be required before reserving the service elevator for a move or when leasing a party room or a guest suite or, in some instances, for the use of the BBQ. Residents moving out may be requested to provide a certified cheque to prevent situations where a bank account does not have sufficient funds.

These deposits are returned in full after inspection of the facility used and adjacent corridors. If damage has occurred, the deposit is held until cleaning or repairs have been completed or costs estimated. The condo will then return the unused portion of the deposit.

For instance, when a guest spills wine or tomato juice on carpets or sheets and a lot of work is required to remove stains, then the cost is reimbursed from the security deposit. Or when a guest or a resident breaks objects or furniture, then they are charged for it—when the inspection can prove that they have done it.

Damage not paid for by a guest or tenant becomes an owner’s responsibility. It is, therefore, important that the concierge or the manager do a pre- and post-inspection to assess if any damage has occurred.

When residents damage a part of the common elements or fail to maintain their exclusive-use common elements (parking space, balcony, yard, fan coil), tenants or owners have to be duly notified in writing and given the opportunity to remedy the situation within a reasonable period of time. When this period expires, the corporation has to carry out the maintenance or the repairs if this maintenance is necessary to prevent deterioration or damage or injury to others. Owners are then charged for the costs. (Click here for Who Is Responsible for Maintenance, Repairs & Alterations?)

In large condos, a notice may be posted ahead of time announcing that oil stains in parking spaces have to be removed by residents or a fee will be levied if this has not been done by the time the power washing of the garages takes place. It is also a good idea to educate residents about the fact that automobile fluids, especially oil, damage water proofing membranes that cover the floor of parking areas. It is important to inform residents about the costs of replacing this membrane, which can be in the hundreds of thousands of dollars.

In times of digital cameras, managers may take a picture of each parking space that is stained with automotive oil as an additional proof for residents in the event that they contest the charge or refuse to comply.

Owners may try to recoup the costs incurred by tenants. But owners are ultimately responsible for such maintenance and damage. Were maintenance or repairs necessary to prevent injury, deterioration of corporation assets, or damage to other suites and common elements, and the sum not paid, it can appear on the status certificate and a lien procedure may be started. Owners generally pay all outstanding debts before selling because buyers’ lawyers will require it.