A Buyer’s Guide to Understanding Condominiums

Whether this is your first home or your first time buying a condo after many years of owning a house, purchasing a condominium is vastly different from buying a detached house. It is therefore important to understand what condominiums are before you jump into your condominium purchase in order to make informed choices to protect yourself and your investment.

What is a Condominium?

A condominium can be apartments in a high-rise building, rows of townhouses, or detached houses, that are individually owned as pieces of real estate, but there are shared lands and common areas that are called common elements that are owned by all unit owners jointly.

These common elements and the land are operated by a condominium corporation, whose Board of Directors are elected by the unit owners. This Board of Directors oversees how the condominium corporation is run, which includes making financial decisions and other management aspects of the condominium corporation. The Board may also hire a property manager to manage the same as well.

Types of Condominiums

In Ontario, condominiums can come in many forms, including:

  • Standard Condominiums are the common type of condominium property where you own the unit and jointly own the land and common elements, which is operated by the condominium corporation, as described above. Standard condominiums are different from the other types of condominiums described below.
  • Common Elements Condominiums are properties where you own the land and the building on the land. You also own a percentage interest in the common elements, like roads and shared facilities like a recreation center or a pool.
  • Vacant Land Condominiums are properties where the land itself is a unit in the condominium and you can build your building on that land subject to restrictions.
  • Phased Condominiums are properties where different parts of a single condominium are built in phases and added to an existing condominium corporation. These different parts can be new units or new shared facilities.
  • Leasehold Condominiums are properties where you own the unit and a share of the common elements, but that ownership is subject to a ground lease of the property the units and common elements are built on.

Who and What Governs a Condominium Corporation?

The organization and operation of a condominium is governed by the Board of Directors and several documents registered on title of each of the units. All unit owners are bound by those documents and the Board of directors may make, amend, or repeal these documents by resolutions. A condominium is governed by the following documents:

  • Declaration: The condominium’s Declaration creates the condominium corporation and sets out the boundaries of the units, the proportionate allocation of common expenses to each unit, the exclusive use common elements designated to each of the specific units, and other items regarding the governance of the condominium corporation. The Declaration will also set out restrictions and conditions on items including, but not limited to the use of the units and/or common elements, the insurance requirements for the condominium corporation and the unit owners, and the leasing and transfer of the units and/or common elements.
  • By-Laws: By-laws can be made, amended, or repealed by the Board of Directors and are used to set out specific functions of the Board of Directors, who may be appointed to the Board, authorize the corporation to borrow money, and govern property management and how corporation assets can be used.
  • Rules: The Board of Directors can make, amend, change, or remove, Rules that affect how the units and common elements can be used. You will often find rules in regard to smoking, noise, parking, and pets in these documents.

If you are purchasing a condominium, it is important to review the above documents to understand what rules, conditions, and restrictions, govern the condominium to make sure the property you are buying does not have restrictions or rules that may affect your lifestyle and intended use of the property. For example, some condominiums do not allow pets and other condominiums may not allow for short term rentals or AirBNB rentals.

The Finances of a Condominium Corporation

As with any Corporation, a condominium corporation’s finances must be in order. Before buying a condominium, you must understand the following costs before proceeding with your purchase:

  • Common Expenses, more commonly known as maintenance fees or condo fees, are monthly payments that are collected from all unit owners of the condominium that pay for the upkeep and maintenance of the common elements, common element utilities, property management fees, and much more. Unit owners pay their proportionate share of common expenses as defined in the declaration as a percentage of the total common expenses. The Common Expenses are determined every year by the Board of Directors in the annual budget.
  • Reserve Fund is the condominium corporation’s fund designated to cover major repairs and renovations to the building. Every three years, the condominium corporation must hire an engineer to estimate the life expectancy of the common elements, like the roof, elevators, parking garages, etc., and set out a study of how much needs to set aside to fund those repairs and renovations as these common elements wear out. A portion of the common expenses is contributed to the Reserve Fund.
  • Special Assessments are charges that are paid by each unit owner proportionately that are above and beyond the common expenses budgeted for in the annual budget. These are often a result of unanticipated expenses or major repairs that are incurred by the condominium corporation and the cost for the same are passed on to the unit owners proportionately.

Understanding and budgeting for these costs should be a key part of your plans to purchase a condominium. Be sure to go over these costs before you rush in and by your dream condo.

The Status Certificate

When you sign an Agreement or Purchase and Sale to buy a resale condominium, your real estate agent should always put in a condition for your Real Estate Lawyer to review the Status Certificate. A Status Certificate is document that summarizes the condominium unit and the condominium corporation’s current financial and legal status and provide information on common expenses.

The Status Certificate would reveal key information, including, but not limited to common expense arrears, special assessments, legal actions against the condominium corporation, adequacy of the reserve fund to fund future repairs and replacements, insurance, alterations to common elements for your unit not approved by the condominium corporation, potential unanticipated repairs or expenses, etc.

The Status Certificate also comes attached with the Declaration, By-Laws, Rules, insurance information, audited financial statements, reserve fund studies, budgets, and other relevant documents to help you make an informed decision on whether to proceed with your condominium purchase.

It is important to retain a Real Estate Lawyer to review the Status Certificate before firming up your transaction because the Status Certificate may reveal certain issues that may affect your decision to go ahead with your purchase or may affect mortgage funding to close your transaction.

The Disclosure Package

If you are buying a Preconstruction Condominium, there will not be a Status Certificate for you to review and the Condominium Corporation will not have been formed yet. The Builder will provide you with a Disclosure Package that would include the proposed first year budget for the condominium, the draft Declaration to be registered in the future, along with proposed draft By-laws and Rules.

While these documents are just drafts and can be changed or updated by the Builder at any point during the construction of the project, the Disclosure Package would provide you with key information to make sure the property you are buying does not have restrictions or rules that may affect your lifestyle and intended use of the property. It is important that you review these documents before your initial ten (10) day cooling off period ends.

Things to Consider When Buying a Condominium

Buying a Condominium has its own obstacles, and you should consider some of the following items to make sure a particular condominium is right for you:

  1. Do the condo rules have any restrictions that may affect my lifestyle or intended use of the property? For example, pet restrictions that disallow your beloved pet or parking restrictions that exclude your type of vehicle to be parked can be deal breakers.
  2. Do you own parking units and locker units or are they only exclusive use?
  3. Are there any issues with the financial health of the Condominium Corporation and will it impact my future costs?
  4. Is this a new condominium building and have taxes been assessed individually by the City?
  5. And much more….

Retaining the right real estate lawyer with experience in closing real estate condominium purchase transactions is crucial to completing your transaction smoothly and making sure your investment is protected. Kung, Lo & Jia LLP is experienced in closing many condominium purchase transactions and can guide you through the intricacies of buying a condominium. Contact us today for a quote and review your Status Certificate with us.