This is part two of Special Considerations for Saskatoon Condo Buyers. Part one is here.
In part one of this post, I discuss the various documents that are normally available for your review when purchasing a condominium. These documents are traditionally requested by the buyer as part of their offer and are provided following acceptance of your offer. If you have made your offer through a REALTOR® in Saskatchewan it will include terms that provide a “right to rescind” the offer should you discover facts about the condominium corporation which cause you to want out of the deal. The mandatory Schedule “C” used by real estate registrants in our province provides ten days for the seller to deliver the documents and five days for the buyer to review them. Part two is an overview of what those documents are.
The current Bylaws of the Condominium Corporation
The Bylaws define how the condominium corporation is structured and managed, including details on how the board of directors is formed and what authority the board has to act on behalf of the condo corporation. It should explain your rights as a voting partner in the corporation. It also details the rules and regulations of the corporation which all unit owners must agree to as well as what remedies exist when someone breaks those rules.
The latest financial statements of the Condominium Corporation and the last audited statements
This is an overview of the financial affairs of the condominium corporation including a statement of income and expense. You should be able to determine what assets are owned by the corporation, what liabilities exist and how the corporation has been utilizing the contributions made by its unit owners. Complex financial statements should probably be reviewed by your accountant who will have some expertise in identifying area of weakness or concern.
The current policy of insurance
The Condominium Property Act, 1993 requires that condo corporations carry insurance sufficient to cover the replacement cost of buildings and improvement in the event that a condo property is destroyed.
Any current management agreement regarding the Condominium Corporation
If the condo corporation has elected to use a property management service to perform certain functions on behalf of the corporation, details of that arrangement should be provided to you.
The current recent budget of the Condominium Corporation
An overview of estimated expenses of the condo corporation for the current year.
Written confirmation of parking/storage facilities and exclusive use areas included in the purchase price, any related costs or charges and any special rules regarding those areas
This one is pretty obvious but do be certain that you receive written confirmation of any areas which are designated for your exclusive use. In most cases, the title to your unit only includes your actual unit. Parking stalls are most often part of the common area, portions of which are designated for exclusive use of specific residents. You must have written confirmation of your right to use a specific parking stall.
A current Estoppel Certificate issued by the Condominium Corporation pursuant to the regulations of The Condominium Property Act, 1993.
The Estoppel Certificate will normally include details on the following items:
· the amount of the monthly contribution (condo fees) levied against the unit you are purchasing;
· the extent to which that contribution has been paid;
· the manner in which the contribution must be paid;
· the portion of the contribution which is deposited to the reserve fund;
· the current balance of the reserve fund;
· proposed amendments to the Bylaws of the Condominium Corporation;
· amounts of any special levies which may be proposed which would affect the unit you are purchasing and;
· in most cases, exclusive use provisions for parking and storage are detailed here.
Reserve Fund Study
Perhaps the most difficult item to assess of all of those detailed above is the reserve fund. If a condo corporation encounters a significant expenditure which cannot be adequately covered by reserve funds, the corporation will issue a cash call and unit owners will be required to make up the difference. One cannot simply look at the balance of the fund and say, “Oh, that’s a lot of money,” or “That’s not very much money.” One must consider the overall condition of building and improvements and any possible costs which the corporation may encounter in the future to determine if the reserves are sufficient, and even then, it’s often a best guess for most people. This is a particular challenge with larger projects like high rise condominiums. I recently assisted a purchaser who bought a condo in downtown Saskatoon high rise. One of the budget items for this condominium was new caulking for the windows. The estimated cost was in the range of $70,000. This is something neither he nor I could have possibly considered or understood had that item not been disclosed to us. Apparently, neither could the condo corporation and consequently this item was dealt with through a cash call.
Recent changes to the Condominium Corporation Act requires all condo corporations with 12 units or more conduct a reserve fund study by January 31, 2008. The study must be updated every ten years thereafter. The study will be completed by an engineer who will assess the remaining life expectancy of the major components of the buildings and improvements, estimate the future cost to maintain, repair or replace those components and determine if the current reserves and the monthly contributions are sufficient to cover those costs. Many corporations have already completed their surveys. When shopping for a condo, you may prefer to consider those condos where the reserve study has already been completed, particularly if you’re purchasing part of a large project like a high rise.
Other Actions You Might Take
- Have the property inspected by a professional inspector who is qualified to assess the condition of major components of the buildings.
- Speak with directors of the condo corporation and ask questions about improvements they’ve been discussing. Ask specifically if there are pending decisions on major financial items.
- Speak with some of the current owners.
- Start reading the Condominium Corporation Act when you’ve decided to purchase a condo.
- Ask if a reserve fund study has been completed and if so, make your offer conditional upon receiving, reviewing and approving it.
- Work with an agent who is experienced in condo purchases and can guide you through this complex process.
Royal LePage Vidorra