Condo-Smart

Condominiums are fast becoming the housing of choice for many home owners. In 1993 MLS* condominium sales accounted for 15.85% of overall residential home sales in Calgary. Ten years later the overall sale of condominiums had risen to 24.8% of all residential sales in the city. Between 2002 and 2003 residential sales other than condominiums declined from 19,031 to 18,319. Sales of condominiums, however, in the same period rose slightly from 6023 completed sales in 2002 to 6040 in 2003. In 2008 – condominium sales had increased to 42% of residential sales. Whether it is affordability of condominiums or the attractive lifestyle, condominiums are becoming increasingly popular in the Calgary housing market.

Whether you are buying a unit for your own use or purchasing for revenue, there are benefits to buying into a condominium complex. Condominiums often mean lower purchase prices, choice locations, security, maintained capital assets and ease of outside maintenance.

Yet, despite the obvious investment opportunity, many investors are nervous about purchasing a condominium. They understand it is similar to buying a single family home in the sense that it is real property ownership but they also know that it differs in that it has two distinct parts: 1) you own a unit to which you get a title, and 2) you also jointly own common property with the other unit owners in your complex. It’s the joint ownership of the common property that makes buying a condominium unique

So, what is common property?

Common property is defined as all the property identified on the condominium plan, but not contained in the unit and is not designated for public roadways, public utilities or reserve land. Common property, depending on the type of condominium development you are buying into can include roofs, attics, doors, windows, elevators, lobbies, stairwells, exterior walls, parking, landscaping, sidewalks, balconies, fences, recreational facilities – even laundry facilities and built in vacuum systems.

To manage the corporation, the unit owners elect a Board of Directors at the Annual General Meeting (AGM). The Board are all volunteers (non-paid) who donate their time and talent on behalf of all the owners. Their mandate is to ensure the continued well being and viability of the corporation. Some corporations will contract out the day-to-day operations to a professional management company. In Alberta, the management company and the Condominium Corporation (and therefore the Board of Directors) is regulated by the Condominium Property Act. Condominium property ownership would not be possible without the Act.

Contrary to popular belief, condominiums are not maintenance free – rather they are labour free. Maintenance is still needed, the cost of which is jointly paid by the unit owners through the Condominium Corporation.

The cost of maintaining the common property is the shared responsibility of the unit owners (you). You will be obligated to pay your share based on your “unit factor”. Some call this shared portion their “condo fees”, but really it is contribution to the overall budget needed to operate the corporation. A fee implies you are paying for a service. Rather, you are paying your share of the overall expenses on property you share. All unit owners are required to pay their contribution, for the continued upkeep of the common property. The unit factor is a fraction in whole numbers, the total of which adds up to 10,000. The unit factor determines the voting power of the unit owner; show the share of the common property in which you, the owner, has an interest and also determines the share of common expenses required to maintain the common property. The amount you pay is your unit factor multiplied by the overall annual budget.

To manage the finances of the corporation, one of the most important duties of the Board of Directors is to ensure that the corporation maintains two separate bank accounts – one for operating and one for reserve. The operating account is used for the day-to-day operations (maintaining the landscaping, snow removal, and repairs for normal wear and tear etc.). The reserve account (also known as the Capital Replacement Reserve Fund) is a savings account. This account is used for major capital repairs ie. roof replacement, major exterior painting, paving upgrades etc. The life cycle of the common property improvements and structures are outlining in the Capital Replacement Reserve Plan Study. The study is up dated every five years. It is just that, a study – a recommendation. The Reserve Plan takes the study one step further. It is a map of sorts developed by the Board of Directors outlining when the repairs and improvements will take place. It is the responsibility of the Board to ensure that the money needed to do the necessary work is in place at the appropriate time.

It is important to know how well the Board budgets and manages both accounts. If the Board runs out of money or does not have enough for major repairs, they can “special assess” the unit owners for any short fall. Special assessments are not always something that you will have budgeted for. If you fail to pay your share of the condominium expenses (either the regular contributions or the special assessment) the corporation has the mandate and the power through the Act to place a caveat on your property and to begin foreclosure. Because owning a condominium involves your money and is your investment, it is therefore very wise to know how well the corporation is run, how well the assets of the corporation (property and money) is managed as well as how well the corporation is at planning for future development and repairs.

In addition to managing the common property, the Board of Directors is required to adhere to the Bylaws of the corporation. The Bylaws regulate the how, within the confines of the Act, the corporation will provide for the management and administration of the units, and the real and personal property of the corporation and the common property. In other words, the Bylaws spell out the specifics for operating the condominium corporation.

While the Act is the same for all condominium corporations in the Province of Alberta, the Bylaws can differ from one corporation to the other. All corporations will have Bylaws, but they may differ regarding pets, where to park, who has keys, age restrictions, at-home business operations etc. It is important then, when considering purchasing a condominium unit to have an understanding of not only the Act (standard for all condominiums) but also of the Bylaws of the corporation you will be buying into. For the most part, it is the Bylaws that you will be living with on a day-to-day basis. Think of the Bylaws as the “house rules”. Within the Bylaws, the “house rules” will be spelled out. They will define what is allowed and not allowed.

In addition to the Bylaws, all Boards will have policies. All policies are passed as a motion of the Board and will appear in the minutes (a written record of the meetings of the Board) of the organization. Some corporations have taken the time to put the policies in a manual that is made available to all the unit owners. That said some Boards do not realize they have policies. They will argue that they have Bylaws and not policies or their bylaws are their policies. The truth of the matter, in addition to the bylaws, they also have policies. The just may not recognize them as such. But each time at a meeting of the Board they pass a motion that is proactive in nature they are establishing a policy.

Here’s an example of a policy. The Bylaws may have a clause that indicates that dogs are allowed but only at the discretion of the Board of Directors. In other words, the Bylaws allow for dogs, if the Board agrees. The Bylaws give the Board the authority to regulate the type of dog allowed, where it can go, if it needs a muzzle etc. So – lets say they pass a policy that says dogs are allowed only if they are less than twenty pounds. That means if you are moving into the condominium complex and own a dog that is akin to miniature horse, you will not be allowed to have Bruiser move in with you. You can see why it is important therefore to not only have a clear understanding of the Bylaws, but also the policies. In this example, while the Bylaws indicate there is an option to have a dog, the policies state that the dog has to be less than 20 pounds.

Bylaws are registered legal documents that can only be changed or repealed by a special resolution at a meeting of the unit owners and with agreement of 75% of the unit owners representing 75% of the total unit factors. Policies, though, can be overwritten at the Board level. But they too are somewhat difficult to change. If the majority of the Board says no to Bruiser, then you’re out of luck.

It’s fair to say that living in a condominium is a compromise. How comfortable you are with the Bylaws and policies may well determine how well you enjoy living in your new residence. While the Bylaws and policies can be changed, they are not changed easily, so it is important you understand and are comfortable with them before you make your purchase.

For the most part, the corporation operates much the same as any other not-for-profit business. And like any other business, how successful the corporation is managed is important. One way of understanding just how well the corporation is managed is to review the documents each corporation is required to maintain.

You will want to look before you buy. Just as one of the conditions you place on your offer to purchase is to have a mortgage in place or home inspection, you will also want to put in a condition that you receive and have a review of the of the condominium documents, and that they are acceptable to you. When making the review of the documents a condition of your purchase, (or for that matter –any conditions, like arranging for a mortgage or having a home inspection done) give yourself a minimum of five business days, or longer, to collect any paperwork you require for the mortgage, arrange to have your condominium documents reviewed and any home inspection completed.

This document is not intended as a substitute for legal advice. For more detailed advice you may want to consult a lawyer who specializes in condominium property law.

* Information on Calgary housing sales provide through Calgary Real Estate Board Co-operative Ltd. Multiple Listing

* For more your copy of the Alberta Condominium Property Act , call or visit The Queen’s Printers, John J. Bowlen Building 602, 620 – 7 Ave SW, Calgary (403) 297-6251 or download your copy from the website at www.qp.gov.ab.ca