For Condominium Buyers
Buying a condominium is quite different from a typical house purchase. Whether this is a first home, or the first purchase of a condominium after many years of owning a house, you need to be aware of the unique aspects of a condominium purchase and the questions that you need to ask to protect yourself.
What's a condominium?
A condominium is a residential structure in which apartments or townhouses (both kinds are called "units") are individually owned as pieces of real estate while the land and common elements (e.g., elevators, hallways and/or sidewalks) are jointly owned by all of the unit owners.
A condominium unit could be a suite in a high-rise tower, a townhouse, or even a detached house. Each unit is given a legal description, based on the space that it occupies.
Storage lockers and parking spaces can be created as units within the condominium or they can comprise part of the common elements, designated for the exclusive use of a specific dwelling unit.
The condominium corporation operates the condominium and the land. The unit owners elect a Board of Directors to oversee the running of the condominium corporation, including financial decisions. The Board may contract out the day-to-day workings of the condominium (e.g., paying of utility bills for the common elements, cleaning the common elements, snow removal, etc.) to a property manager or property management company or they may run the day-to-day workings of the condominium themselves.
Common elements condominiums: In a common elements condominium, you own the freehold land and the building(s) on the land. There are no specific units. You also own a percentage interest in the common elements. For example, homes could be freehold, but roads and facilities, like a recreational centre, could be common elements.
Phased condominiums: In a phased condominium development, different parts (e.g., new units or new recreational facilities) of a single condominium can be built in phases. As each phase is constructed, it is added into the already existing condominium corporation.
Vacant land condominiums: In a vacant land condominium, you purchase the land as a unit in the condominium. Then, you may decide what type of structure, if any, will be built on the land, subject to restrictions in the Declaration.
Leasehold condominiums: In leasehold condominiums, you own a unit and a share of the common elements, subject to the ground lease of the property on which the units and common elements are constructed. The initial term of the lease must be between 40-99 years and the owner of the leasehold unit can sell, mortgage, or lease the unit without the consent of the landlord.
Standard condominiums: Standard condominiums are those that aren't defined as the other types of condominiums (i.e., common elements condominium, phased condominium, vacant land condominium or leasehold condominium).
The following documents are registered on the title to each unit and they govern the organization and operation of the condominium:
- Creates the condominium corporation;
- Contains the boundaries of the units, the percentage of the total common expenses allocated to each unit, the common elements that are designated for the exclusive use of the owners of specific units and other items regarding the governance of the condominium corporation;
- May also contain conditions or restrictions regarding the occupation and use of the units and/or common elements, and conditions or restrictions regarding gifts, leases and sales of the units and common elements.
- Made, amended or repealed by resolutions of the Board of Directors;
- Are made to:
- Set out the specific functions and workings of the Board of Directors and who is qualified to sit on the Board of Directors;
- Govern the management of the property and the use and management of the assets of the condominium corporation;
- Authorize the condominium corporation to borrow money
- Made, amended or repealed by the Board of Directors;
- Affect the use of the units and common elements.
What are common expenses?
Common expenses, which are sometimes called maintenance fees or condominium fees, are payments that unit owners must make every month to cover their portion of the expenses for the common elements.
Common expenses pay for the daily care and upkeep of the condominium (e.g., cleaning of the common elements, snow removal, landscaping, building repairs, etc.), plus property management fees, utilities for the common elements (and, if specified, for the units, too) and more.
What is the Reserve Fund?
It is a fund set up by the condominium corporation to cover major repairs, upgrades, etc. to the building (e.g., roof, elevators, parking garage, etc.). A portion of each common expense payment goes to the Reserve Fund.
What is a special assessment?
It is a charge beyond the monthly common expense fee that is established by the condominium corporation if the Reserve Fund does not contain enough money to pay for a major repair. The added expense can be an unwelcome surprise for you.
What is a Status Certificate and why is it important?
A Status Certificate is a written statement of the condominium unit's current financial and legal status and that of the condominium corporation. It will give you specific information about your monthly common expense fees.
It's important for your real estate lawyer to review a copy of the up-to-date Status Certificate because:
- It includes key information such as: details relative to common expenses, payment arrears, special assessments, any pending legal actions, insurance and any unusual additions to the common elements for your unit that have not been approved by the Board. For example, the condominium corporation may establish a special assessment (a charge beyond monthly maintenance fees) for unanticipated repairs or expenses such as a leaky roof.
- It also includes information regarding the Reserve Fund. Reserve Fund studies are an important aspect of condominium management. You want to know that the condominium corporation is complying with its requirements to obtain Reserve Fund studies and that the reserve fund is currently considered adequate for future major repairs.
What else should I consider?
- Do you have a pet that will live in the condominium with you?
- Do you prefer a patio/terrace that allows you to have a barbeque?
Condo rules may have an impact on these kinds of lifestyle issues, so tell your real estate agent and lawyer immediately of any "deal killers" in terms of your lifestyle.
- Your real estate lawyer can also explain to you what sort of property rights you will have: for instance, do you actually own your storage locker or parking space, or do you just have exclusive use of them as part of the common elements?
Condominium Board Oversight/Governance
- The condominium board oversees the working of the condominium corporation and has a great deal of influence over how the condominium is run. Try to find out as much as you can about the board and the character of the building.
New Construction vs. Conversion vs. Resale
- A newly constructed condominium is a brand-new, modern building. Brand new condominiums are covered by the Tarion New Home Warranty Program. For specific coverage information, please consult the Tarion website. If you purchase a new condominium, you may get the opportunity to customize your unit. If you purchase a unit from a plan, you should be aware that the plans may not reflect the actual floor area of the unit (i.e., the plan may not include the walls of the unit, where things like the hot water heater, furnace and/or air conditioning unit will be situated and how low the ceiling will be to accommodate wires, pipes and ducts).
- A conversion condominium is similar to a newly constructed condominium, but the exterior of the building already exists. The developer modifies the building to create individual units and common elements. Conversion condominiums are not covered by the Tarion New Home Warranty Program.
- A resale condominium is an existing condominium. If you purchase a resale condominium unit, you will buy it from an existing owner, not the developer. You will be able to see the building and the unit before you decide to purchase. After the applicable warranty periods have expired, resale units will not be covered by the Tarion New Home Warranty Program (assuming they were covered when new).
Realty Tax Assessment
- If you are buying a "nearly new" resale unit, you need to be especially aware of whether a separate assessment of realty taxes per unit has yet taken place. If the assessment has not yet "caught up" with the new development, you may find your realty taxes increase dramatically after an assessment takes place. Your real estate lawyer can work with you to determine whether the taxes for the unit have been separately assessed and make efforts to protect you from having to pay realty taxes attributable to previous owners.
Special Issues for New Condominium Developments
- If you are buying a brand new condominium unit, you are entitled to a disclosure statement from the developer of the condominium. Following receipt, there is a 10 day period when you can rescind or try to re-negotiate the agreement of purchase and sale. During this time, review all documentation provided very carefully and consult with your real estate lawyer as soon as possible. It is crucial to determine if you want any detailed legal advice or negotiation services during this window of opportunity.
- When buying a brand new condominium unit, you also need to be aware of whether your development has plans for "phasing," whereby developers build new units (or even entire new buildings), or new common elements, on the same site. This can involve changes for you in the overall enjoyment of the property and/or delays in access to advertised amenities. It is important to be aware of other possible implications of "phasing."
- When you purchase a brand new condominium, there are usually two closings:
- The first closing, called the interim closing occurs on the confirmed possession date (also called the interim closing date) when the unit is ready for occupation. At this time, the purchaser is required to take possession of the unit, but the condominium has not yet been registered. After the interim closing, you can live in the condominium dwelling unit, but you do not yet own it (you occupy the unit more or less as a tenant). During this time, you will pay a monthly interim occupancy fee to the developer, for realty taxes, maintenance and interest on the vendor take-back mortgage.
- Once the condominium is registered, the final closing occurs. At the final closing, title to the condominium is registered in your name and, if you are borrowing money to purchase the condominium, your mortgage is also registered.
Obtain TitlePLUS title insurance policy
- Speak with your real estate lawyer about securing a TitlePLUS title insurance policy on your condominium. Title insurance can protect you from costs and complications in the event that something does go wrong with your new home. Please refer to the TitlePLUS policy for full details, including actual terms and conditions as some restrictions may apply.
Other things to think about:
In addition to the items set out above, you should review the Your Lawyer's Role section of the Real Simple Real Estate Guide.
You should also review the Checklist.