I read an interesting article last week that I thought deserved some commentary.
The gist is that a Calgary man sold his condo and between the sale going firm and the possession date, a “special assessment” was levied for the building in the amount of $1.1M, his portion of which came out to $25,000.
This is basically every condo seller’s nightmare. The standard wording on a purchase contract says that if a special assessment is levied prior to the Possession Date, the seller has to pay it, regardless of when it is due. If it’s levied after the Possession Date, the buyer has to pay it.
A special assessment, casually known as a “cash call” is when a condominium (this can be apartment or townhome, anything registered through land titles as condominium style ownership) has an unexpected expense come up that they don’t have money for in the reserve fund or operating fund. The amount required is split between all of the owners based on their percentage of ownership in the Condominium Corporation.
Condominiums do carry insurance, so a special assessment is typically levied for a large expense that is not covered by insurance.
It might sound complicated but it would be the equivalent of a homeowner having their furnace fail and need to be replaced way before it should. This is not covered by your home insurance policy so a homeowner would just have to cough up the $5,000 to replace it.
Special assessments are not entirely uncommon, though many of them are small amount (under $2,000 each) for an upgrade, repair or sometimes just to top up the reserve fund amount if it’s running low. Homeowners also run into expenses every year that are hundreds or thousands of dollars, so I don’t feel this is necessarily a reason not to purchase a condo.
The special assessments that run into the tens of thousands of dollars each are typically for large structural issues or “building envelope” issues – water penetrating into the building from improper installing of siding, flashing, etc.
In the case of the man in the article, his frustration lay in the fact that the condo board was aware of some issues or potential issues but didn’t disclose everything that they knew before his sale. If he knew about the potential large assessment, he simply wouldn’t have agreed to sell his condo, would have paid the $25,000 and waited it out a few years.
I think this man is very justified in his frustration. However, there are a few nuances to remember.
Condo boards are a group of volunteers, comprised of owners in the building. This group of individuals may have no expertise whatsoever in the field of real estate, construction, accounting, etc. They are simply owners that care about the way their building is being managed.
These volunteers are regular humans with their own flaws, their own busy schedules, their own day jobs. They can’t devote their lives to running the building and don’t always have the knowledge to make big decisions themselves.
This is where a property manager comes in. The condo board relies heavily on opinions and expertise from the property manager, who is a professional that works in this field every day. Like all industries, there are good managers and bad managers out there.
Not all day-to-day documentation is provided to all owners. Managers are given some leeway to make small decisions and hire out tasks as needed. Larger decisions should need the approval of the condo board, but don’t necessarily need approval of a majority of owners.
In the case of the man in the article, reports had been made in the past about structural concerns but no decisions had been finalized. The manager’s response is that if quotes and proposals are provided to a condo corporation, they are not required to disclose that to all owners. Only official reports and accepted proposals would be communicated to owners.
I do feel that more transparency would help avoid situations like this in the past. Observations and suspected issues should perhaps be reported in Board Meeting and AGM Minutes so that other owners can be aware of them. Other owners should be trusted to make their own responsible decisions about their property, like whether to sell or not.
I definitely understand that some people want to purchase a condo for the low-maintenance lifestyle. Perhaps they travel half the year or have a very demanding work schedule. So I understand that some condo owners do not want to put the time and effort into being on their condo board.
However, it is always my recommendation to, at the very least, read your condo AGM minutes and your budget every year. These documents are provided to all owners. Attend the AGM if you can and ask questions.
You wouldn’t expect to buy a detached home and not spend one hour of work per year making sure the house is being maintained. Even if that means hiring out tasks to contractors, you still need to be aware of what the tasks are and who is doing them.
Likewise, be aware of what is happening in your condominium. And if you can, sit on the board for at least one year to get a sense of what the responsibilities are and how decisions are made.
-Amie
