May 2016
Ontario has approximately 10,000 condo corporations and requires about 50,000 directors to manage them. Properties range in value from $30 million to over $200 million and have annual revenues that can exceed $3 million.
Despite having revenues and valuations in excess of most corporations, many condo corporations operate in a casual manner that puts them at risk.
For all intents and purposes, condo corporations are private corporations. They have revenues – condo fees paid by owners – and expenses. Management is expected to operate in a way that makes best use of these revenues. Being non-profit, condo corporations are not expected to charge more to condo owners than is necessary to maintain and operate the corporation.
Typically, the most successful corporations are those where an owner is actively involved who understands the business. The same cannot be said for all condo corporations.
Condo corporations often rely on some combination of management and consultants without developing an understanding of their business. This can lead to ignorance, abuses and less effective decision making.
Condo fees set too low, while appealing in the short-term, will result in necessary infrastructure work being delayed or ignored. Eventually, heating or air conditioning systems may not work well. Underground garages may go unrepaired. Amenities that are old, dated or damaged may go unrepaired. Higher condo fees become necessary, more than they would otherwise have been, to repair extensive damage and prevent total failure.
What saves poorly run condo corporations from failure is their ability to raise funds through special assessments or higher condo fees.
Condo corporations are managed by a board of directors. Its directors are condo owners who volunteer their time to the management and operations of their respective condo corporations. Such individuals often lack the necessary skills to effectively manage the vast sums of money accumulated and spent by their condo corporations.
Serving as a condo director requires no prior experience, education or specific skills to manage the affairs of this multi-million dollar corporation. While some level of experience is desirable, it is difficult to impose such criteria for a position that is voluntary, demands considerable time when done properly and requires making difficult decisions that can be opposed by some condo residents.
Some support mandatory education for condo directors but fail to consider that such a requirement would dilute the limited pool of volunteer candidates for this demanding role.
It is assumed that condo directors will utilize consultants and experts to compensate for their knowledge gap. It is also assumed that the property management company, contractors and service providers all operate to high standards. Yet a “lack of ownership” by non-owners means that probing questions may not be asked, quoted prices not effectively scrutinized or negotiated, or deliverables documented.
This is not an ideal solution to the management of one’s home or finances.
Many condo boards are unwilling to put in the time required to effectively manage their corporation. They rely on their property manager, superintendent and/or contractors to do this job for them. Reliance on these individuals places a condo corporation in a position of dependency that can result in lower standards, higher costs and a general ignorance about condo operations.
Competent and effective condo boards have some common traits:
- The President sets the agenda and chairs board meetings and AGMs.
- The Secretary takes the minutes of board meetings which are posted for resident access.
- The Treasurer works with management to prepare annual budgets.
- The board establishes targets for areas of operations inclusive of budget items, cleanliness, efficiencies, security standards and resident complaints.
- Committees are established to oversee aspects of condo operations on behalf of the board.
- Major expenditures are reviewed to ensure they are within the allotted budget and that anticipated benefits or savings are realized.
- After contracted work is complete, it is reviewed by management and at least one director. Identified deficiencies are rectified before a project is closed out and payment made.
- All contracts of substantial value are put out to tender with at least three bids required. Boards evaluate tendered bids with no predetermined preference for any vendor.
