Condo Fees too low for 90% of Condo Corporations

April 2017

If the roof leaks or the underground garage requires repair, can your condo corporation afford to repair it?

A new roof or boiler may require replacement after 20 years. Either can fail and require replacement after five years.   If your reserve fund is underfunded, early replacement or major infrastructure repairs are scary.

Alternatives to proper repair and replacement are unappealing. Special assessments are an admission that your condo board has failed to properly plan. Perhaps there was more interest in keeping residents happy with lower condo fees than ensuring the corporation could afford to maintain its infrastructure.

Recent information out of British Columbia suggests that 50% of all condo corporations operate without any contingency fund. An estimated 90% of all B.C. condo corporations have underfunded their reserve fund. Special assessments can be about $5,000 but may reach as high as $80,000. Condo owners unable to pay a special assessment are being forced to move.

Part of the reason is that condo fees in B.C., including Vancouver, can often be less than half of what they are in Toronto. Condo residents tend to be focused more on protecting their personal assets over the short-term than longer term community interests. This leads to financial shortfalls, special assessments and degrading infrastructure. Condo owners feel they are saving money. They are surprised when special assessments are implemented or the condo corporation is unable to undertake necessary repairs.

Ontario, like British Columbia, has no rules to determine if condo fees or reserve fund levels are adequate. Incorrect assumptions or political motives allow condo corporations to operate for periods of time with inadequate condo fees or reserve fund levels. For these reasons Ontario, like B.C., may be allowing 90% of its condo corporations to operate with underfunded reserve funds. Condo corporations that operate in this manner eventually create a declining standard of living for their condo residents, a combination of condo fees and special assessments higher than what would otherwise have been, or both.

While B.C. requires 25% of annual operating budgets be set aside for unforeseen maintenance and repair, there is no penalty for not having a reserve fund. Condo corporations can exempt themselves from establishing a reserve fund if 75% of owners agree. For exempt condo corporations, special assessments are the only option for obtaining needed funds.

Ontario regulations are stricter in that all condo corporations must maintain a reserve fund. Yet there is no standard identifying how much of a reserve fund is appropriate for maintaining a high-rise condo building.

Some estimate that condo corporations more than 20 years old should maintain a reserve fund at least comparable to their annual revenues, and possibly twice as much, to deal with major infrastructure repair and replacement that is likely in the next ten years.