Condominium finances are an interesting yet polarizing subject. Whether you are an owner, investor, or even just a renter living in the building, it is important to understand the basics of topics such as reserve funds, special levies, and condo fees. That’s why we’ve put together a little guide to help you better understood the nuances surrounding condo finances.
Condominium Reserve Funds
The Alberta Condominium Property Act requires that condominium corporations establish and maintain a capital reserve fund to provide for major repairs and replacement of property and common property owned by the corporation. As buildings age, they need to be repaired and maintained. (For example, the roof of the complex may need to be replaced.) The same is true of other parts of the common property such as the asphalt in the parking lot, underground utilities, or services and landscaping. Condominium owners must pay for the repair or replacement costs of the property owned by the corporation. However, the reserve fund is not used for repairs or replacements that are done annually.
Each condominium corporation will have a different amount in its reserve fund. The corporation determines how much money it should have in its reserve fund by completing a reserve fund study. The reserve fund study is prepared for use by the condominium board, owners and buyers. The Alberta Government does not review it. If the corporation does not have enough money in the reserve fund to cover significant repairs or incurs other large unexpected expenses, the board may require each condominium owner to pay a special assessment to cover the costs.
Condominium fees are often one of the bigger concealed fees that condo buyers often forget to fully take into account. Even if you own the condo out-and-out, you may still have to pay condominium fees in for as long as you have the property. The condominium corporation needs money to meet its financial obligations – paying for insurance premiums, snow removal, grass cutting, repairs to common property, reserve fund, etc. The main source of income for the corporation is the money paid by the owners in their condominium contributions (often referred to as a condominium fee).
Contributions are normally set annually and paid monthly, however the board can levy special assessments (one or more lump sums) if the corporation needs to raise extra funds to meet its obligations. The board sets contributions by taking into consideration the budgeted needs of the corporation and the unit factors (for each unit). Corporations can change the formula for allocating condominium contributions, if the owners pass a special resolution to amend the bylaws. Make sure you know how your condominium contributions are calculated. Be aware that condominium contributions can and do go up! A condominium corporation has the right to collect unpaid condominium contributions.
Condominium Special Levies
A special assessment (also known as a special levy) is a financial contribution that can be imposed on condo owners in addition to their monthly condo contributions (fees). It may be levied as a one-time lump sum or as an additional monthly payment. Special assessments are like a fee and are often proportional to the percentage of common expenses each unit has, as per the declaration. Therefore, a smaller suite's special assessment will be lower than the one paid by a larger suite. It is the duty of a condo board to impose a special assessment when necessary, and owners have to comply, as is the case for fees. Owners cannot vote on whether or not to levy a special assessment.
If the owners of a condo building believe that the rationale for the special assessment is not well explained or documented, they can requisition a meeting to force the board to discuss the issue. But the board does not have to stop the special assessment. If the board refuses the requisitioned meeting, and owners still believe that the special assessment is unwarranted, owners can requisition a meeting for the purpose of replacing the board. Or owners can have recourse to a lawyer in order to get a court order to stop the special assessment pending a review.
If you want to learn more about the property management services that Braden Equities Inc. provides, and how we can help you ensure your condo board is as effective as possible, please contact us today.