Year One for a New Condo Building

January 2016

One of the most important steps a new condo corporation must undertake is to transfer control of the condominium corporation from the developer -appointed board to an owner-elected board.

The owner-elected board needs to oversee the transition of ownership, a process that can take many years. As this transition occurs, condo owners increase their control as the developer becomes less involved.

During this transition period when condo owners are not yet in control, establishing a committee is one way for condo owners to work together. There are numerous advantages to having one group that can consolidate owners’ concerns and bring them to the attention of the property manager who, at this stage, reports to the developer-appointed board. This committee can and should obtain access to corporation records. They should also review the first year budget. It is advisable to have regular meetings of owners to share information and concerns.

A condominium corporation exists after more than 50% of a development’s units are sold, and its declaration and description are registered. This occurs within 21 days of the developer not being the majority owner of units.

A turnover meeting is when control of a condominium corporation is handed over to an owner-elected board. This is the point where an owners’ board is elected and when the corporation’s documents are handed over. The owner-elected board will typically employ a lawyer, engineer and auditor to advise them. They may also choose to employ a management company that is not affiliated with the developer.

The elected board has 60 days from turnover to obtain and review audited financial statements and any contracts that have been signed by the developer. Audited financial statements should be compared against the first year budget. The board can terminate most contracts signed by the developer with at least 60 days’ written notice, within one year of the turnover meeting. If current contracts appear unreasonable, this is an opportunity to renegotiate them or seek alternate service providers.

The management company is a crucial contract that should be reviewed. At turnover, the management company operates in the best interest of the developer. The owner-elected board needs to decide if the management company can operate in the best interests of condo owners. This may not be the case if the management company is dependent on the developer for future revenues.

The following tasks need to be undertaken by the owner-elected board during the first couple of years:

During the first year after registration

  1. Undertake a performance audit on the building. This should be filed with Tarion and the developer. Tarion was formerly called the Ontario New Home Warranty Program. It was created by the province to administer the Ontario New Home Warranties Plan Act. Tarion’s role is to ensure that new homeowners in Ontario receive the new home warranty protection they are entitled to by law. Click here for more information on Tarion.
  2. Perform a reserve fund study and deliver a plan for contributions to the unit owners.
  3. After the turnover meeting and prior to the end of the first year, review all contracts signed by the corporation. Determine which contracts to maintain and which to terminate.
  4. Review the financial audit from the end of the corporation’s first year. Identify the amount of the deficit, if any, as compared to the disclosure budget. Seek recovery of this deficit from the developer.

During the second year after registration

For a Tarion-covered building, update the performance audit. This is necessary to comply with the two-year building envelope and mechanical-electrical warranty provided by Tarion.