We read with interest the article in the Toronto Star of February 14, 2015 about how one newly minted condominium corporation lowered its common expense contributions by 30%. While we understand the concern about high common expenses we were concerned by the approach. One of the statements made in the article was that lower fees make for higher market values for the units.
We have over 30 years of experience working in the industry as lawyers for condominium corporations and feel that the suggestion that common expenses can be “kept down” to make the units more marketable is a short-sighted approach to the issue of ever-increasing condominium fees. It should be noted that the same increases are being incurred by house owners, as all costs are rising. If all other condominiums have fees that are double those quoted then there must be a good reason. The board of this condominium cannot be the only smart one in the GTA.
Condominiums are an expensive way to live. The convenience of this style of living means that owners must pay for everything that needs to be done on the property and must, according to the Condominium Act, save for the inevitable rainy day. We worry that artificially keeping common expenses low for the purpose of increasing the market value of units will benefit those who are going to sell in the short term. It is, however, unfair to the community in the long term.
People who buy condominiums that offer “services” often buy for that reason and to arbitrarily cut back the hours or levels of these services may not benefit those who live there. Currently under the Condominium Act, owners’ approval is only required when a service is added or modified and there is an added cost for same. Individuals who view condominiums as speculative investments will, of course, be happy with decisions to cut back. Their common expenses will be reduced and their income streams improved. But what about the owners who live in their units as their primary residences and are less concerned with immediate return on investment? How will their lives be affected?
Owners in condominiums with high levels of service, including management, concierge and security, as well as major amenities and fewer units, will pay much more in monthly fees than will those in large complexes with the same levels of service but many more units over which to spread the costs. This is part of the choice to live in a smaller community. New buildings likely have low flush toilets, water saving shower heads, energy saving systems and recycling programs. Old buildings do not, but may offer much larger units. Some older buildings are heated by electricity and we all know what has happened to our hydro costs. All of these differences impact monthly fees. The comment in the article about apples and oranges is absolutely true.
A significant hidden issue is that many buyers face higher fees because developers have not always fairly disclosed the true costs of living in the condominium. There are many ways to avoid giving the complete information to buyers. Both the artificially low first year common expense contributions set out in the developer’s budget and the inadequate initial contributions to Reserve Funds are part of the reason common expenses rise so significantly. Also, many developers, in an attempt to make common expenses appear lower, individually meter units for hydro, make owners rent heating and cooling equipment by separate contract rather then including it in the purchase price, and rent or sell suites and equipment to condominiums, sometimes with payments not beginning until year two of operation.
All of this adds to the common expenses that are payable. Some developers do not do this at all. Many do. In a condominium’s second year, when the reality sometimes hits home, condominiums are faced with increasing fees to ensure that the services promised are continued. We are hopeful the government will address these issues in the amendments to the Condominium Act, which are currently in the works and which we anticipate will be introduced in late May 2015.
The suggestion in the article was that the occasional special assessment is a better way to go and is preferable to having high common expenses. This may not reflect the true cost of living in the condominium and means that those who are benefitting from living in the property may not be paying their fair shares. The burden of large expenditures falls then on those who happen to be the owners at the time that the special assessment is made, not those who have sold and moved on but enjoyed the benefit of owning a unit in the building for several years. If the financial plan for a condominium is to levy large special assessments when the time comes for major repairs, we trust that those corporations are disclosing this approach in their status certificates.
In our practice we are now seeing the results of years of holding the common expense fees down. Reserve funds are inadequate, maintenance is not being done properly and residents are facing assessments many cannot afford. Negotiating with reserve fund engineers to have them change their decisions on costs and time frames is also not appropriate. While a dialogue is certainly allowable to ensure that the board understands the engineer’s assumptions, we are seeing condominiums facing major shortfalls in their reserve funds because the board has gone further and persuaded the engineer to reduce the contribution amounts and increase the life span of the components being evaluated.
A balancing act is what boards face. Keeping fees in line makes sense. Not wasting money makes sense. However, when the goal is to raise the value of the units and levy special assessments on an as need basis, instead of budgeting for the true cost of living in the condominium, we believe that is problematic. We are always surprised by the number of people who have an inadequate understanding of the real cost of living in a condominium.
For the Toronto Star article use this link.