Condo Building or Rental Property

May 2015

Today’s market is such that many condos have become rental properties. A large number of condo units are now owned by investors for the purpose of income generation rather than home ownership. The percentage of rentals in a condo building is typically as low as the mid-teens to upwards of 80%. Some claim that a condo complex where 25% or more of units are rented out is no different than a rental apartment. For such buildings, the benefits of condo living may be less clear and resale values can drop.

There is a point when a condo becomes indistinguishable from an apartment.

Ownership has always been viewed as playing an important role in property maintenance and quality. Condo ownership generally requires an upfront investment in the form of a down payment plus repayment of a mortgage. In return there is equity which we call home ownership. Owning a property means not being forced to move. Having equity in property suggests a greater incentive, or commitment, to maintaining the value of that equity. Owners are less likely to take actions that damage their own property or cause that property to drop in value.

Ownership of property presumes an interest in maintaining its value. In a condo this value extends to common areas, amenities and quality of life. It is less likely that owners will damage, misuse or abuse property where they reside.

Apartment living, by contrast, is a short term commitment not always consistent with the goals of home ownership. Tenants do not have a financial stake in the property where they reside. They are more likely to act in ways that can result in higher costs and unnecessary repairs to their units or common areas. These higher repair and maintenance costs must eventually be recouped. Otherwise there is an eventual shortage of funds to prevent degradation of the building and reduced lifestyle of tenants. Tenants, not having an ownership stake, can more easily move to a nicer building when quality or lifestyle has degraded.

Reconciling the needs of condo owners and tenants falls to the province. The Condo Act governs how condo corporations, which are controlled by condo owners, operate. Now that condos are have become rental properties there is a second set of rules to follow.

Renters are governed by the Residential Tenancies Act. This set of rules governs the relationship between tenants (renters) and landlords (condo owners). These rules may have made sense when owners and renters resided in different buildings. Now that condo owners and tenants reside within one condo building these same rules have in many instances become a source of conflict. One example is that renters may be protected against rent increases regardless of how costs increase. They may also be protected against or delay eviction proceedings even when their actions negatively affect neighbours. Having different sets of rules for condo owners and tenants is inconsistent with the community lifestyle of condominiums. It can create conflict, animosity and result in higher costs for condo owners.

As costs increase and are borne by owners, there comes a point when home ownership becomes less appealing compared to renting. It makes less sense to own a condo in a high-rise building, and be responsible for higher maintenance and replacement costs, when a large number of residents are tenants without the same financial interest in keeping costs down or maintaining property value.

Absentee owners detract from the long term value of home ownership. While some condo boards have tried to deter absentee ownership through bylaws restricting rentals in a condo building, the courts have not been supportive. Many condo owners perceive this as unfair when their home is being degraded to the level of a rental apartment building. Should this trend persist and the value of home ownership be degraded, current strong interest in condo ownership may not continue.



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