Condominiums have recently become the dominant form of housing in Toronto. Condo living attracts many types of buyers, who are trying this lifestyle for the first time, including singles, young couples, families, empty nesters or retirees. They each have individual expectations of what condominium living will be like. The owner of a 500-square-foot unit wants different things than the owner of a 2,000-sq.-ft. unit in the same building. The retiree's expectation differs from the investor who has rented out his unit. The dog owner's view of the common elements differs from a condo owner's without a pet. The owner of a more expensive unit may want a concierge and valet parking, while someone with a smaller unit may feel such services are unnecessary.

Here are tips to ease the transition into this type of homeownership.

Many first-time condo buyers may not know that a developer is only required to complete a unit to the satisfaction of municipal requirements (which is providing water and electricity to the unit). They can leave unfinished items to be completed after the move-in date. Most agreements of purchase and sale say that buyers must complete their interim closing regardless (but checking in with a lawyer is certainly recommended).

After the interim closing and the payment of further deposits and adjustments, it may be a few months or more before the developer is able to register the development as a condominium corporation through the land registrar. Until that is done, final closing cannot occur (and a mortgage cannot be registered against the unit). During this time, the purchaser will live in a construction zone and pay monthly interim occupancy fees. Occupancy fees are made up of three main components: common expense fees, property taxes and interest on the unpaid balance of the purchase price. Purchasers are often not aware they have to complete two closings, and are surprised to learn that this occupancy fee is essentially "rent" paid to the developer.

We often hear from buyers: "Why do I pay occupancy fees? I don't own the unit yet and I don't receive any services." It is a payment to the developer to cover the expenses of the building during the occupancy period. These occupancy fees can be used as the developer sees fit, except the portion of the fee slated for the reserve fund, which, after an occupancy period lasts more than six months, must go to into the reserve fund (essentially an enforced bank account that ensures there will be enough funds down the road for major common element repairs).

Once the condominium corporation is registered and final closing has occurred for the majority of the units, a turnover meeting must be called; all unit owners are invited to attend. The unit owners are, in effect, taking control of the condominium corporation by electing a board of directors to look after the building's day-to-day operations, with the assistance of the property management company and the guidance of the corporation's lawyer.

Unit owners often have a misconception that the management company is an extension of the developer and ask them to fix deficiencies in their unit. But the property management's scope is limited to common elements. It is not unusual for a property manager to be asked by an owner to repair a faucet "since I have paid my rent on time." Unit owners do not pay rent, they pay common expense fees, which cover the common elements of the building and not maintenance on a unit.

In some cases, the management company is appointed by the developer, however, the management agreement is with the condominium corporation and is for managing the common elements. The property management company communicates and receives instruction from the board of directors. A good management company can also help reach an amicable resolution to issues between the developer and the condominium corporation, to try to save on legal fees.

Buyers should also be aware that what is in a marketing brochure at the time of sale may not be what the developer delivers. The developer always reserves the right, as stated in the fine print, to make changes. A lawyer familiar with condo contracts can identify what items are subject to change and what are included.

Most buyers know that when the developer begins selling units, it can be two to three years before occupancy takes place. So it's important to note that, while the expenses set out in the budget at that time are prepared with the best estimates, they will be on the conservative side. It is very common for expenses to go up after the first year, sometimes by 25%, and will go even higher with the HST. These increases are mostly for utilities (hydro, gas and water/sewer) and would have originally been based on estimates of a similar building.

The reserve fund contribution also sees increases. The fund must be in compliance with the Reserve Fund Study, a requirement under the Condominium Act of Ontario. Having a healthy reserve fund is important for any unit owner who wants to maintain and increase his building's and his unit's market value. Down the road, resale buyers will want to see sufficient reserve funds when deciding whether to buy into a particular condominium corporation.

Sometimes unit owners will compare their common expense fees to those of other buildings, but those fees depend on many factors, including the services that are provided, the number of units in the building and the expenses that are included.

While the developer is usually responsible for any first-year shortfall in the reserve fund, condominium corporations should not take it to the bank. Developers tend to review the first-year financial statements and challenge the amount of the deficit-- and, if they're successful, the owners will be responsible for the shortfall.

- Shlomo Sharon is president and CEO of Taft Management, which specializes in condominium management in the greater Toronto area.


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Taft Management and Forward Property Management Group

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