Hidden costs can be a new Toronto condo owner’s nightmare
Monthly fees can almost double in first 3 years, says Ellen Roseman
Excerpt from an article by Ellen Roseman – Toronto Star
You have an agreement to purchase a new Toronto condo unit. Now you’re worrying about how much the monthly operating costs will be.
There’s cause for concern. The monthly fees can go up significantly if you’re buying a newly built Toronto condo.
“It is common for condominium owners to see fees rise by 40 or 50% in year two and by another 20 or 30% in year three,” says John Warren, a chartered accountant who has done audits for more than 200 condominiums in the Toronto area.
There are no published benchmarks on what it costs to live in a Toronto condominium, Warren says. Comparisons are difficult because of wide variations in the services offered.
Developers know that if they say 37 cents a square foot and their competition says 27 cents, they’ll find it harder to close deals. So, they will calculate the first year’s budget as tightly as possible.A portion of your monthly fees goes into the reserve fund. This is a separate trust account that all Toronto condominium corporations have to establish.
As a Toronto condo owner, you’re responsible for the upkeep of your own unit. But you also share the cost of maintaining the common elements of the development.
“Areas designated as common elements in one condominium corporation might be parts of individual units in another,” says Toronto condo lawyer Audrey Loeb, author of a plain-language buyer’s guide distributed by the Canadian Condominium Institute.
Common elements are what are outside your unit – the lobby, hallways, elevators, parking areas, landscaping, recreational facilities and structural parts of the building.
Maintenance and repair of common elements are generally the Toronto condo corporation’s responsibility.
Individual owners usually pay for maintenance and repair of exclusive-use common elements – balconies, parking spaces, storage lockers and lawns in a townhouse development. However, the cost may be shared by all owners.
Under the Condominium Act, Toronto condo developers must use 10% of monthly fees for the reserve fund in the first year.
The Toronto condominium corporation, once it’s registered, has to do a reserve fund study within a year. That’s when surprises happen.
Toronto condo developers prepare their budgets at the start of a marketing campaign – about three years before the condominium is registered – so they’re working with gas and electricity prices that are far too low.
Most Toronto condo developers try to include the first-year deficit in the overall negotiations over building defects. They hope to delay payment until all their obligations are settled.
Typically, condo corporations receive payment for reserve fund deficiencies in year three. They may have to sue to recover, which takes longer.
And if there’s a bankruptcy – since developers set up shell companies for each Toronto condo – the owners may recover nothing at all.
Even if the first-year deficit is repaid, new Toronto condominiums are still financially fragile, Warren says.
He advises Toronto condo boards to collect more each year than they need for costs – between one to two months of common element fees – until they have a big enough surplus to withstand most financial shocks. Loeb agrees that Toronto condo developers “woefully lowball the costs. They say they’ll pay the costs in year one, but don’t say what the costs are in year two.”
“It’s terribly unfair, because people budget to go into a Toronto condo with the lower amount,” she says.
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