Condo Fees, Budgets and Reserve Funds: What a First-Time Condo Buyer in Ontario Is Actually Buying

Buying a condo means joining a corporation

Buying a condominium in Ontario is different from buying a freehold house. When you purchase a condo you are not only buying your individual unit — you are also becoming part of a condominium corporation that is responsible for managing the shared property, the common elements, the finances and the long-term maintenance of the condominium.

For a first-time buyer that raises a set of questions that never come up on a freehold purchase. Where does my monthly fee actually go? Who decides how much it will be? Who checks whether the corporation is spending the money properly? What is a reserve fund, and what happens if the corporation runs out of money? Can fees ever go down? What should I check before I buy?

What is a condominium corporation?

When a condominium is registered, a condominium corporation is created. It is responsible for managing the property, the assets and the affairs of the corporation, and a board of directors oversees it on behalf of the owners.

Many corporations also hire a licensed condominium manager or a management company to handle day-to-day responsibilities — maintenance coordination, owner requests, records, service providers, budgets and meetings. The board, however, remains responsible for the decisions and the oversight.

What is a condo fee?

Your monthly condo fee is your share of the condominium corporation’s common expenses. It may also be called a maintenance fee or a common expense fee.

The amount each owner contributes is determined according to the condominium’s declaration. That is worth reading twice: two units in the same building do not necessarily pay the same amount, and the split is set by the declaration rather than by square footage alone.

Where does my condo fee go?

This is the most useful question a condo buyer can ask, and the answer differs from building to building. Depending on the property, the fee may cover:

Never assume utilities are included simply because another condominium includes them. Review the specific condominium’s documents.

• Building maintenance — hallways, lobby, elevators, parking garage, landscaping, snow removal, common areas, exterior components and recreational facilities.
• Utilities — in some corporations water, heating, electricity or gas are included in the fee; in others they are not.
• Condominium management fees, where the corporation uses professional management.
• Cleaning and staffing — cleaning, security, concierge, superintendent and maintenance personnel.
• Insurance carried by the corporation for the corporation and the common elements. You still need your own condominium unit insurance.
• Amenities — a pool, gym, sauna, party room, guest suites, security, concierge, underground parking or gardens all cost money to operate, maintain, repair and eventually replace.

What is the reserve fund?

This is the concept a first-time condo buyer most needs to understand. A portion of the owners’ common expenses is contributed to the corporation’s reserve fund — money set aside for the major future repair and replacement of common elements and assets. Ontario condominium corporations are required to maintain one.

The kind of work it exists for is the expensive kind: roofs, elevators, parking garages, windows and exterior components, plumbing, heating and electrical systems, roads and sidewalks, recreational facilities and other major common-element components.

What is a reserve fund study?

The board cannot simply guess how much money it will need in future. Ontario’s condominium framework requires periodic reserve fund studies, in which qualified professionals examine the condominium’s major components, their expected useful life, the estimated timing of replacement or repair, and the anticipated costs. The study is what determines how much should be going into the fund.

After the first study, subsequent studies generally occur on an alternating basis at set intervals. This is one reason condo fees can increase even when nothing appears to be wrong with the building today — the corporation may need to collect more now to be ready for work expected years from now.

Why a healthy reserve fund matters to you personally

Imagine a condominium expecting a major parking garage repair several years from now. If the corporation has been planning and funding properly, much of the money may already be there when the project becomes necessary. If it has not, the owners can face higher future common expenses, borrowing, or a special assessment.

So when you evaluate a condominium, do not only ask how much the monthly fee is. Also ask how financially healthy this corporation is. A lower condo fee is not automatically better.

What is a special assessment?

A special assessment is an additional amount owners may be required to contribute when the corporation needs funds beyond its normal budgeted common expenses — typically when a major unexpected repair is required and the available funds are insufficient.

Depending on the circumstances and on your unit’s allocated share, that can be a significant unexpected expense arriving with little notice. It is the single best reason to review the corporation’s financial condition before you buy rather than after.

How a condo corporation prepares its budget

A condominium corporation prepares an annual budget covering the money required to operate the property and meet its obligations — insurance, utilities, cleaning, landscaping, snow removal, security, management, maintenance, repairs, professional services, administration and reserve fund contributions.

The total is then collected from the owners according to the proportions established for their units. Your condo fee is therefore not an arbitrary number chosen by the property manager. It is the corporation’s budget, divided by the declaration, arriving at your unit.

Who controls the corporation’s money?

The corporation is governed by its board of directors, who are generally elected by the unit owners. The board is responsible for managing the corporation’s property, assets and affairs, and for financial oversight.

A condominium manager may assist with preparing budgets, collecting fees, arranging services and running day-to-day operations, but the board remains responsible for overseeing the corporation.

Is anybody checking the condo corporation?

Yes. There are several layers of accountability, and knowing they exist tells you where to look when you are doing your due diligence.

• The board of directors — oversees the corporation’s finances and operations and has responsibilities under Ontario’s Condominium Act.
• The owners — can attend meetings, vote, review information provided by the corporation and request access to various records. Owners should be reading financial statements, reserve fund information and corporation communications.
• An independent auditor — Ontario condo corporations are generally subject to annual audit requirements, with certain statutory exceptions. The auditor examines the financial statements and reports to the owners, and the Condominium Act gives auditors access to the records, documents, accounts and vouchers needed to do it.
• The Condominium Authority of Ontario — provides information, education, resources and dispute resolution for Ontario’s condominium communities, alongside the Condominium Authority Tribunal for certain disputes.
• The Condominium Management Regulatory Authority of Ontario — condominium managers in Ontario are subject to licensing through it.

Can I see how the corporation is spending money?

Condo owners have rights to access various corporation records, subject to the Condominium Act’s requirements and procedures. The records that matter most are the approved financial statements, budget information, reserve fund information, meeting minutes, and the declaration, by-laws and rules.

That access is what makes a condominium purchase knowable in a way that a freehold purchase is not — you can read how the building has been run before you agree to help pay for it.

The status certificate is the document that decides the purchase

For a resale condo buyer the status certificate package is the most important part of due diligence. It provides information about both the corporation and your specific unit, and according to the Condominium Authority of Ontario the package can include the corporation’s current budget, the most recent audited financial statements, the auditor’s report, reserve fund information, and the declaration, by-laws and rules.

This is why Robin encourages condo buyers to take the status certificate review seriously and to get legal advice on it before proceeding, rather than treating it as one more piece of paperwork that arrives late in the process.

What should my lawyer look for in the status certificate?

Your lawyer will advise you based on the particular transaction, but buyers generally want to come out of that review understanding:

• The financial condition of the corporation and its reserve fund.
• The current budget and the audited financial statements.
• Any existing or anticipated special assessment.
• Litigation involving the corporation.
• Insurance matters.
• The rules and restrictions, including anything affecting pets, leasing or renovations.
• Parking and locker information.
• Any unit-related arrears or issues.
• Planned major repairs and significant financial obligations.

Do condo fees ever go down?

It is possible, but do not buy a condominium expecting it. A corporation’s required expenses change from year to year, and if expenses fall substantially or efficiencies are found, the required common expenses could decrease.

In practice many major condominium costs tend to rise over time — inflation, labour, insurance, utilities, maintenance, security, management, ageing building components and reserve fund requirements all push in the same direction. Budget on the expectation that fees can increase.

Is a condo with a low maintenance fee always better?

No, and this is one of the biggest mistakes a first-time condo buyer can make. Put two units side by side, one with a noticeably lower monthly fee than the other, and the lower one looks like the better buy.

Now ask what sits behind each number. If the cheaper corporation has an underfunded reserve, upcoming major repairs and insufficient contributions, while the more expensive one has a strong reserve, responsible financial planning and more utilities or services included in the fee, the higher fee may well represent the healthier corporation and the lower total cost of ownership.

So the question is not how low the fee is. The question is what you are receiving for it, and how financially healthy the corporation behind it is.

Does an older condo automatically mean higher fees?

Not necessarily. Age is only one factor. An older condominium that has been responsibly maintained and financially managed may be in better shape than a newer building with poor financial planning.

What to weigh instead: building condition, the reserve fund and the most recent reserve fund study, maintenance history, upcoming projects, amenities, which utilities are included, the number of units, insurance costs, management, and the audited financial statements.

Why do some condos have very high maintenance fees?

High fees are not automatically a warning sign, and they usually have a traceable cause. More amenities — pools, gyms, concierge, extensive common areas — cost money. A fee that includes heat, water and electricity cannot be compared directly with one that includes very little. Older mechanical systems and infrastructure may require more maintenance.

Beyond that, the corporation may be deliberately increasing reserve contributions to prepare for major future repairs, insurance costs may have moved materially, staffing and twenty-four-hour security raise operating costs, and the number of owners sharing the expenses influences the cost per unit. Find the reason before you judge the number.

Fifteen questions to ask before buying an Ontario condo

Work through these on any condominium you are seriously considering:

• What is the monthly condo fee, and what exactly does it include?
• How much has the fee changed over the last several years?
• How healthy is the reserve fund?
• When was the most recent reserve fund study completed?
• Are major repairs planned?
• Is there an existing or proposed special assessment?
• Are there significant lawsuits involving the corporation?
• What does the corporation’s insurance cover?
• What amenities am I paying for?
• Are utilities included?
• Are there restrictions on pets, leasing or renovations?
• What do recent board or owners’ meeting minutes reveal?
• Are there significant financial concerns in the audited statements?
• Has my lawyer reviewed the status certificate and the related documents?
• What will my total monthly carrying cost be, not just the mortgage?

Robin’s perspective for first-time condo buyers

When Robin helps a first-time buyer purchase a condo, the conversation has to go beyond whether you can afford the mortgage. The number that matters is mortgage plus property taxes plus condo fees plus utilities plus insurance plus parking plus the rest of the ownership costs.

A condo with an attractive purchase price can become difficult to carry if the buyer has not properly accounted for the monthly fee and its likely increases. Equally, do not reject a condominium because its fee looks high — first understand why it is higher and what is included. And do not choose one because it advertises an unusually low fee. The financial health of the corporation, the reserve fund, the building’s condition and its future obligations can matter as much as today’s monthly number.

Common questions

Where does my condo fee go? It funds the corporation’s operating expenses, maintenance, services and contributions to the reserve fund. What is included varies from condominium to condominium.

Who decides the condo fee? The corporation’s annual budget establishes the funding required, and each unit contributes its allocated proportion of common expenses according to the declaration.

Does the property manager decide my condo fee? The manager may help prepare the proposed budget and handle day-to-day finances, but the board of directors is responsible for financial oversight and decisions.

Can condo fees increase every year? They can increase whenever the corporation requires additional funding for operating expenses or reserve contributions. There is no rule that they stay flat.

What happens if the reserve fund is too low? The corporation may need to increase reserve contributions or use other financial measures, and depending on circumstances owners can face increased common expenses or a special assessment.

Who audits a condominium corporation? Ontario corporations generally have an independent auditor review their financial statements annually, subject to statutory exceptions.

Can condo owners see financial records? Yes, owners have rights under Ontario’s condominium legislation to request and access various corporation records, subject to the applicable procedures and restrictions.

What is the single most important document before buying a resale condo? The status certificate package, because of how much it reveals about both the unit and the corporation. Have your lawyer advise you on it.