June 2023
Ontario’s requirement that each condominium corporation maintain a reserve fund and conduct a reserve fund study protects owners. To better understand how this works, there is no better place to look than Chicago.
Chicago is the United State’s capital of condo deconversion. Large numbers of owner-occupied condominiums are being replaced with rentals. Condominium owners in deteriorating buildings and faced with high maintenance costs they are unable pay find deconversion (sale of the entire building) to be their only practical option.
In the 1970s, Chicago saw many rental buildings converted to condominiums to appeal to middle-income yuppies. These buildings are now among the oldest in the USA. Owners are finding they are unable to recover their investment and fail to keep up with maintenance. They now want a way to leave these properties. Investors are purchasing the buildings at a discount and converting units to rentals.
One way in which Toronto differs from Chicago is that the Ontario Condominium Act requires condominium corporations to maintain a reserve fund and undertake regular reserve fund studies. This requires owners to contribute more substantially to the reserve fund and undertake necessary maintenance. In Chicago, few condominium corporations do not undertake a reserve fund study and choose to maintain insufficient funds in their reserve fund. This leads to insufficient preventative maintenance and large bills for communities that fail to set aside sufficient funds. In Florida, we’ve seen loss of life because of failure to maintain high-rise buildings. One tower –Champlain Towers– collapsed. Within a couple of months the state began evaluating buildings and evacuated at least nine of them.
Throughout Ontario, condominium corporations have wide discretion on the amount of money set aside in their reserve fund. Many communities choose underfunding and are forced to implement large special assessments to compensate. This choice is preferable to the deconversions that occur in Chicago where investors are able to purchase unmaintained buildings at a discount and convert them to rentals. Once an investor owns a majority of units it becomes easier to force a condo deconversion on other owners. These professional landlords are more efficient than volunteer condo boards when it comes to keeping costs down by improving operational efficiency.
Voting on a deconversion pits owners against owners. Long-term owners want to remain in their home. More recent owners are angry about paying for maintenance that should have occurred prior to their ownership. They never anticipated a large assessment that can’t be justified by a future selling price in the next few years. For them it makes more sense to vote for deconversion and sell to an interested buyer.
Chicago is an example of what happens when board members fail to perform needed maintenance on a timely basis. The Miami building collapse offers a more extreme example. The Ontario Condominium Act protects local condominium corporations and their owners from the more extreme repercussions of poor maintenance by requiring a reserve fund and having a reserve fund study undertaken according to a prescribed schedule.
