Purchasing a condominium is not the same as purchasing a house on its own lot. The following list sets out six important things to understand when you are thinking about buying a condo.
1) The Concept of a Condominium
The basic concept behind condominiums is that you purchase sole ownership of a “unit” in a project, together with joint ownership of all common elements of the project with other unit owners. The project is typically a high-rise building or a row of townhouses.
As a unit owner, you become a voting member of the condominium corporation. The condominium corporation elects a board of directors, which makes important decisions about the operation and management of the project.
Owners of condo units have different rights and responsibilities than owners of traditional houses. Condo purchasers must be aware that the use and enjoyment of a condo is restricted by a number of factors that do not exist when purchasing a traditional home on its own lot. However, condo owners are usually spared the routine maintenance problems that come with home ownership.
2) Restrictions on Use
The use and enjoyment of a condo is limited by three kinds of documents: the Declaration; the corporate by-laws; and the rules made by the directors. It is important to review these documents so that you know exactly what you are buying and how your use of the property may be restricted. Ask your lawyer if you have any questions or concerns.
Declaration – This is the document that creates the condominium corporation. It contains descriptions of all of the units in the condo. It also sets out the ownership of the common elements and the obligation of owners to pay common expenses. The declaration may restrict how the units and common elements can be used. A common restriction is to limit the use of the units to residential use.
By-Laws – These are the rules for running the corporation. They set out things like the number of directors, how many directors are required to constitute a quorum, how notice of meetings is given, and so on. It is important to be aware of how the condo corporation is structured, since you will be buying into it.
Rules – The board of directors can pass reasonable rules about the use of the common elements and the units. Owners must comply with these rules. Purchasers should be aware of any rules in existence at the time of purchase. A new rule is effective 30 days after notice is given to each owner. Within this 30-day time period, owners can demand a meeting to reconsider the rule. This requires the support of at least 15% of the owners.
3) Common Elements & Common Expenses
The common elements of a condo are all of the parts that do not form part of the units. For example: the lobby of a high-rise building; hallways; stairways; elevators; a parking lot; etc. A common element can be designated for the exclusive use of an owner. For example, parking spots in a garage may be assigned to particular units. Backyards and balconies are often considered common elements, but are typically reserved for the exclusive use of the adjacent unit owners.
Common expenses are monthly contributions made by unit owners towards the maintenance and repair of the common elements. The costs of operating the condo development are borne by the condominium corporation. To do this, they collect money from the unit owners each month. Common expenses cover costs for the common elements such as cleaning, gardening, snow removal, management fees, and legal and accounting fees. If an owner fails to make a payment for common expenses, the corporation has an automatic lien against the owner’s unit.
The corporation must insure the replacement costs of the units and common elements. Unit owners are responsible for insuring any improvements made to their units, as well as the contents of their units.
Therefore, owners do not have to carry fire insurance for the entire unit, because this will be covered by the corporation’s insurance. However, the corporation’s insurance will not cover the unit owner’s contents, or any improvements made by the owner. Most fires will damage items classified as improvements or contents such as wallpaper, rugs, paintings, furniture, etc.
There is a distinction between regular maintenance and repairing damage.
Maintenance – Generally, the corporation is responsible for maintenance of the common elements and the unit owners are responsible for maintaining their own units. However, this can be altered in the declaration to make the owners responsible for maintaining common elements to which they have exclusive use, e.g. a balcony.
Repairing Damage – When damage occurs, the corporation is responsible for repairing the common elements and the units. However, they are not responsible for repairing any improvements made by the owner to the unit. Owners are responsible for damage they do to the common elements.
6) Reserve Fund
Every condo corporation must maintain a reserve fund. This ensures the corporation will have enough money to cover repair and replacement costs. Reserve fund studies are conducted every three years to determine how much money the corporation should have in the reserve fund.
Owners must contribute to the reserve fund once per year. An owner’s contribution is at least 10% of their annual common expenses, or an amount recommended by the reserve fund study (whichever is greater).
If you are buying or selling a condo and need to find a real estate lawyer to close your transaction, consider Delaney’s Law Firm. We have ten years of experience behind us, competitive rates, and will provide you with the level of service required to ensure the transaction is as stress-free as possible.