As a result of bidding wars for condominiums, buyers are being asked to review a condominium status certificate in advance in order to submit an offer without conditions. As a service to our clients, we offer this review at no additional cost. Here are 5 items I look at and questions I ask when reviewing a status certificate in advance to give the buyers comfort before making their purchase decision.
- Have units sold and closed in this building in the last 3-4 months?
If units are selling and closing, it means that other lawyers and lenders have approved the building, and that CMHC most likely has not refused to lend on the property, which has occurred many times when concerns have been raised. This should give you some comfort that all is in order in the building.
2. What is the condominium corporation number?
Condominiums are registered in numerical order, with the first buildings being registered about 50 years ago. There are approximately 2700 condominium corporations in the Toronto area. That means if you are number 2400, your building is likely 2-3 years’ old. If it is number 1500, then it is likely 12-15 years’ old. If it is number 200, then it is closer to 45 years’ old. Similarly, there are about 1500 condominium corporations in Peel Region and York Region, so you can do a similar calculation if your building is in Mississauga or Richmond Hill. This can give you some clues as to when the roof may need to be repaired and whether there is enough money in the reserve fund for major repairs that may be required. For example, a roof may need to be replaced every 20-25 years. This is the major expense for most townhouse projects.
3. Who is the property manager?
When the property manager is a familiar name, there is comfort that the condominium board is being given the correct advice in how to properly maintain the building now and in the future. If you hear names such as Brookfield, First Service or Dell, this is typically a positive attribute for the corporation.
4. Does the reserve fund match the reserve fund study?
The reserve fund study should be updated every 3 years. Be suspicious if there is no current one. The amount in the reserve fund today should be similar to the amount that was projected in the last reserve fund study. Is there an outstanding loan owing by the corporation mentioned in the financial statements? If there is a shortfall, then do the following calculation. If there are 100 units in the building, it is likely your unit is responsible for approximately 1% of the expenses. That means if the reserve fund is short 1 million dollars, your unit share would be $10,000.00. If there are 200 units, your share is one half a percent or $5,000.00. This is likely your worst case scenario. Just adjust your purchase price accordingly. You can do the same math if you need to cost a special assessment or lawsuit affecting the building. Still, make sure your lender is satisfied with this before waiving any financing condition since some lenders will not lend on buildings if there are issues with the reserve fund.
5. Is AirBNB permitted?
The status certificate will tell you how many units are leased to tenants. Many buildings have minimum lease periods of 6 months to 1 year, which would prohibit Air BNB. More and more condominiums are trying to prevent this, due to security and insurance issues.
6. Pets and Parking
Make sure you understand in advance whether pets are permitted at all in the building or whether there are weight restrictions on pets that are permitted. There is no point wasting time on buildings where the buyer has a pet that will not be permitted. Make sure you physically see the parking space and the locker before signing any offer, so that there is no confusion with what you expect to receive on closing. It is possible that the number on the floor may not be the same as the legal unit number. That can be determined by just asking the property manager for details.
If you understand how to read a status certificate, you can assist your clients during a very stressful condominium bidding war.
Contributor: Mark Weisleder, LLP
If you have any questions on this topic or have a situation where your own clients would benefit from our mobile signing service, where we go to our clients from 7am – midnight, 7 days a week at the time and location of their choice, we would be delighted to assist you.