Bosley Realestate

Dear Urbaneer - Understanding Condominium Common Element Fees

October 25th, 2013 | Dear Urbaneer

Welcome to our monthly "Dear Urbaneer" post, where we answer questions sent in by our clients.

This month we tackle the issue of monthly common fees, prompted by this note sent in from Betty.

"Dear Urbaneer

We currently live in the western suburbs and are gearing up to relocate downtown and purchase a condominium. We've been looking at stacked townhouses in the central west part of the downtown core, and more contemporary loft style condominiums near St. Lawrence Market. We've discovered that the stacked townhouses tend to have independent utilities and few amenities, and that the downtown mid-rises not only include all the utilities but offer more amenities like fitness centres, guest suites and security.

There appears to be a lot of variation to common fees in Toronto. Can you offer any insight or explanation as to how we can get a better understanding on condominium common fees?

Signed,

Confused Over Common Fees"

Here's our reply:

"Dear Confused,

For anyone exploring the condominium real estate market, you’ve probably discovered a wide range in the monthly common fees associated with each particular unit. Sometimes the monthly common fee appears very reasonable, while other times it seems outrageously high. For those who don’t have a lot of experience in how monthly fees are determined, here's our primer on understanding condominium common element fees.

First, a condominium is a legal definition that refers to the method of ownership, not the type of building. Any type of home – including suites in a low rise or high rise tower, a loft conversion or a side-by-side or stacked townhome - can be a condominium. When you purchase a condominium, you own the interior space of your home outright. In fact, this is the ‘unit’ that your lending institution registers its mortgage against, if required, on title. Then you, with all the other unit owners in your condominium community, jointly own all the other building and land components external to your unit, from the hallways and elevators to the recreational facilities and the outside grounds. These are for the shared use of all owners and are called ‘common elements’.

The common elements that encompass a building all require maintenance and repair. Depending on the extent of common elements that are collectively owned, the monthly costs can vary to reflect their upkeep. For example, a building that has recreation facilities like a swimming pool or tennis court, or other features like guest suites or a concierge, will have higher fees than ones that don’t. A building on a large property with grounds to maintain and upkeep (landscaping, snow removal, etc.) will also cost more than a building with less, as will one with a superintendent on site. As a buyer, you need to decide what features are important to you and which ones are not, as you may ultimately be paying for amenities you might not otherwise use.

 

 

Your monthly common fee also includes the costs required to operate all the common elements and the building as a whole. Gas and hydro charges for heating and cooling the hallways, lobby and recreation areas are part of your fee. Operating the elevators, and keeping emergency systems in tune also add to your monthly charge. The building will also be required by law to have an insurance policy that covers the repair and replacement of the entire complex in the event of fire or other damage, with the unit owner only being responsible for acquiring a policy to cover personal contents and any improvements done to the unit since its original construction (including upgraded flooring, cabinetry, appliances and built-ins). In addition, the condominium corporation usually receives a single water bill that is paid through the proceeds of your monthly fee. Many of these are costs that a freehold property owner (owning a traditional house for example) would otherwise incur directly, so it’s important to carve out and understand what portion of the monthly fee are basic necessity charges versus building specific expenses.

All condominium corporations are required, by law, to complete a reserve fund study which must be reviewed and updated every few years. A reserve fund study is a comprehensive technical and building component engineering audit of all the common elements found in each condominium corporation, with a detailed analysis on their current condition and future life expectancy. The study forecasts a 30 year future projection on when major repairs and replacement of common elements are required, along with their estimated cost, and creates a detailed savings programme to meet these future costs. Based on the age of the building, the extent and complexity of commonly owned elements, and the number of units, this forced savings programme that essentially protects the future value and condition of the building can put upwards pressure on common fees. This is a critical difference in comparison to owning a traditional house, where a homeowner is not required to plan or save for the future replacement of its building components. When you buy a resale house not recently constructed nor protected under a new home warranty programme, you are effectively purchasing it in its current as-is condition with no assurance on its future condition.

 

 

Certainly if you were required as a house owner to save monthly for the future replacement of a roof, windows, siding, landscaping, etc., you would be placing several hundreds of dollars per month into a repair fund. While most house owners do not do this, owning a condominium effectively does through the savings program which is a component of your monthly common fee. In some instances, the condominium complex has a central heating and cooling system, and occasionally one central electrical system to serve all unit owners. In these instances, the monthly common fee includes all the utilities as well, which frequently adds another $100- $200 per month to the unit fee. Depending on the building you may or may not have a monthly fee that charges you independent of, or inclusive of, utilities. This distinction is critical to ascertaining whether the monthly fee is appropriate and reasonable.

The monthly common fee is typically based on the size of your unit, with the smaller units paying a lesser share than the larger units. This isn’t always the case though, for in some instances the monthly common fees are split equally regardless of the unit size. This is determined during the initial development stages by the developer, who decides in advance of construction how to structure the condominium corporation that will be registered when the building is complete. The condominium corporation is run by the unit owners, usually with the assistance of a property  management company hired by the Board of Directors of the condominium corporation to oversee and ensure the condominium runs efficiently and in accordance with the legal obligations set out by the Province of Ontario’s Condominium Act (1998), which regulates the actions and operations of all condominiums.

 

 

When purchasing a condominium, you can request as part of your purchase a Status Certificate that outlines all the particulars of the building and the specific unit you’re interested in. The Status Certificate, and accompanying documentation, include a declaration outlining the legal registration of the building, the financial statements that list all the expenses, maintenance and repair of the complex, the reserve fund study that shows the current and future projections for repair and replacement of all common element item. Additionally, you can expect an insurance certificate that discloses the policy placed on the development, plus any board minutes available that will bring to your attention some of the issues and concerns the building is resolving at the time of your purchase. We recommend you speak to the building’s Board of Directors, who are often residents of the complex, as well as future unit neighbours to discuss their satisfaction and concerns.

Owning a condominium can be an easy, more affordable alternative to buying a traditional house, but it requires due diligence and a detailed analysis before proceeding. If you’re interested in exploring the condominium lifestyle, we at urbaneer.com welcome assisting you in your search for a space that feels just right, while also offering guidance and insight to finding a calibre reputable building with appropriate common fees."

Have questions? At urbaneer.com, we focus on the many aspects of buying and selling real estate. With a comprehensive understanding of Toronto’s 42 village neighbourhoods, and an acute awareness of how our built environment influences personal satisfaction, we pride ourselves on being one of the city’s more personable real estate boutique services. Ranking in the Top Ten of Bosley Real Estate’s over 220+ sales associates, we are your friendly effective real estate team!

~ Steven and the urbaneer team

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