The excitement you have been feeling the past few weeks as you have been shopping for your new condo has turned to apprehension. Why? Now that you have an offer on a unit you have to review the “Condominium Documents” and you are expected to somehow know what they all mean. How do you know where to look to determine how financially sound the condo corporation is (aside from having the documents professionally reviewed which is always a good idea!).
The first place to look is the reserve fund study. Some questions to ask are: when was it completed, is it less than 5 years old, was the proposed 25 year plan and maintenance schedule adopted and adhered to and is the current balance in the fund equal to the projected amount. Looking at each factor alone will not give you the whole picture. Each must be analyzed in relation to the others. A large reserve fund balance might look good on paper, but if required maintenance issues have been deferred over the years, that balance may be inadequate to deal with work that still needs to be completed. If a reserve fund was completed 5 years ago, the effective age of common property components (ie boilers, elevators, etc) will have changed and need to be re-assessed. There is always the possibility some items will need to be replaced or repaired sooner than expected. Will the fund be adequate?
In today’s economy of rising costs, deferred maintenance is a double edged sword. Deciding to delay maintenance doesn’t make the need go away. It will still need to be done. The problem arises when next year it costs even more to do the same job because labour and parts have increased in cost. The corporation is no further ahead by deferring the work that needs to be completed.
The two words no condo owner (or potential buyer) wants to hear are “Special Assessment”. But wait! This isn’t always a bad thing! Although this topic could take up several articles by itself, special assessments are a corporation’s way of getting the wheels back on the cart, so to speak. It is beneficial to look at special assessments as an investment in the corporation’s and each individual owner’s financial future. When special assessments are used for improvements to the common property or to increase the reserve fund, everyone wins as a healthier financial picture for the corporation is created.
Get that excitement you have been feeling about condo ownership back. Make informed decisions about your potential purchase after analyzing the components of the reserve fund study, plan and fund balance.