Wednesday, October 30, 2013

Condominium Reforms Part 11

As a Property Investor myself   I am personally pleased to see the Standardization of all condominium Declarations.

As we noted in our previous blog, the Stage Two Solutions Report on the Condominium Act Review (the “Report”) focused on five major areas where it was noted that changes are recommended. One of these areas is consumer protection.
We have outlined below a number of the recommendations which are directed towards those purchasers who are buying new condominium units from developers. Many of these recommendations are aimed at eliminating surprises.
Smarter Disclosure
Right now, purchasers are provided with a large book of condominium documents, which include a disclosure statement and proposed declaration, rules, by-laws and first-year budget. Purchasers have a ten-day cooling-off period within which they can review the documents. If there is something in them that they don’t like, then they can walk away from the deal without any penalty. However, many purchasers do not review the documents  because they are too lengthy and/or the language is difficult for them to understand, and they don’t want to pay their lawyer to read them.
It is proposed that the disclosure statement and condominium documents be published on a project-specific website so that purchasers can do word searches. This will make it easier for them to search specifically for provisions that they are concerned about, such as pets, for example.
It is also proposed that the Ontario Government publish an easy-to-read guide in plain language that would be distributed to purchasers by all of the developers. This would educate purchasers about what is involved in condominium living. Many purchasers don’t realize that there are more obligations than just paying common expenses – that there are limitations on their freedom that they would not have in a freehold home, such as, for example, pet restrictions, restrictions on renovations, even restrictions on the colour of the window coverings. This often becomes apparent when there is a breach of the declaration or rules and the Corporation attempts to enforce compliance. Purchasers need to understand that even though they will own their own unit, they must comply with the condominium documents. While this recommendation is definitely a good idea, there is still no guarantee that purchasers will actually read the guide.
Standardization of Condominium Declarations
The Report recommends that the Ministry create a standard declaration for residential condominium projects (including those residential developments that also include some commercial units). This standard declaration would include standard unit boundaries, maintenance and repair obligations, and insurance requirements. A standard declaration will allow a purchaser buying a new condominium to compare new condo projects on an “apples to apples basis”. There will be more consistency among condominium projects as to what are owner responsibilities and what are the condominium corporation’s responsibilities. Hopefully, this will also avoid some of the ambiguities and inconsistencies that are often found in declarations relating to maintenance and repair obligations and what is included in the unit. Of course, this would not apply retrospectively to existing condominiums nor to those condominiums presently being developed.
Prohibit Selling or Leasing of Assets that  Become Common Elements or Corporation Assets
Many purchasers of new condominiums are surprised to discover that  that the condominium corporation may be required to purchase or lease  assets from the developer, such as, for example, guest suites, superintendent’s suites, service areas, recreation amenities, building equipment, etc. and that the leasing/acquisition costs  form part of the common expenses. The Report recommends that this practice be stopped (except for limited exceptions for  specifically disclosed  green energy equipment). The result will be that while these additional leasing or acquisition costs will not form part of the common expenses, the costs of each unit will be increased, as the developer will still need to recover its costs of building these assets.
More Realistic First – Year Budgets
Currently, many owners  of newly created condominiums are finding that their common expenses dramatically increase in the second year. This causes angst for many purchasers as their personal budgets are based on the first year projected common expenses received from the developer. Several recommendations attempt to address this issue:
Developers will no longer be able to sell/lease units/assets to the condominiums, as these costs increase the common expenses.
Developers are not permitted to assume or to defer any costs in the first year that will kick in during subsequent years and cause a spike in the common expenses.
The minimum budget contribution to the reserve fund will be the greater of the amount set out in the reserve fund study undertaken by the developer, or an amount based on a formula that remains to be determined. (The Report concluded that the current reserve fund contribution of 10% of common expenses was not sufficient to create a healthy reserve fund.)  Developers will be required to   commission  a reserve fund study at the time that the developer starts marketing the units.  The reserve fund contribution in the first year budget would be based on that reserve fund study.  The developer would then be required to update the reserve fund study after the initial occupancy of the condominium and prior to registration. If increases to the first year reserve fund contribution  are warranted  based on the updated reserve fund study, such increase would be reflected in the budget without being deemed to be a material change.
Avoidance of Subsidization
Many new condominiums have ground floor commercial units. In some cases, the developers do not install separate utility meters for the commercial units where utility costs are shared on a pro rata basis by all the units. This results in the residential units subsidizing the utility costs consumed by the commercial units, as commercial enterprises generally consume more utilities than residents, particularly in businesses such as restaurants and hair salons, for example. The recommendation is that in mixed-use condominiums, developers will be required to install separate utility meters for the commercial units. This should result in lower utility costs being included in the common expenses of the residential owners.
If these recommendations are implemented, purchasers of new condominiums should be better informed about the responsibilities of condominium ownership, including the financial responsibilities.

All of the items covered here are positive for the Owners and Future Investors of Condominium Units in Toronto, ON. 

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