The Ins-and-Outs of Condo Maintenance Fees
When you become a condo owner, you are responsible for paying monthly condo maintenance fees. Condo maintenance fees are non-negotiable and used to maintain and upgrade your condominium's common spaces and elements.
It is essential to have an estimate of what your monthly condo fees will be in order to calculate your budget and to ensure you can afford not only the condominium you are interested in buying but the carrying costs associated with that purchase.
In this article, we'll discuss how much maintenance fees are, how they are calculated, what they cover, and more, to keep you informed as an investor.
How Much Do Maintenance Fees Increase Each Year?
Understanding Condo Maintenance Fees
Maintenance fees are also referred to as condo fees or common expense fees. These fees are payments you make that lie outside your mortgage payments, homeowner's insurance, and property taxes. Maintenance fees are paid to your condo corporation for the preservation, upkeep, and repair of the property's common elements. Typically, maintenance fees are calculated based on the size of your unit and are expressed as a percentage. The larger your unit, the greater your fees are likely to be.
Condo fees are mandatory in divided co-ownership developments and are calculated first by the developer and then by your condo board on an annual basis. A condo board that determines appropriate condo maintenance fees helps guarantee the longevity of the property and a prosperous future for unit owners.
Every person who owns a condo unit pays maintenance fees that go toward the preservation and upkeep of their building.
How Condo Maintenance Fees Are Calculated
When you purchase a pre-construction condo, developers are responsible for formulating the budget for the first fiscal year. This is also known as a budget statement and is based on an estimation of condo expenses.
The first-year budget will detail the projected:
- Common expenses for the condo corporation (condo fees);
- Costs of the performance audit;
- Monthly common expense contribution for each type of unit;
- Cost of the first reserve fund study;
- And costs of preparing the audited financial statements.
Once a buyer signs the Agreement of Purchase and Sale, the developer will give them the disclosure documents with the first-year budget that shows which fees were calculated and how much each condo owner is expected to pay. After the first year, the Condo Board takes ownership of the annual budget.
It is important to note the Condo Act provides buyers with a 10-day cooling-off period to review the information in the disclosure statement. Once the cooling-off period has expired, the buyer is bound by the terms in the disclosure statement and this complete package of documents. It is always recommended to have these documents reviewed by a pre-construction condominium lawyer to make sure you, as a buyer, understand all the costs and terms.
After the first year, once the developer releases all rights to the condominium and the condo corporation takes over, the Condo Board recalculates the annual budget each year thereafter based on the shared expenses. The overall annual budget is divided by twelve to calculate monthly payments and multiplied by the percentage each unit is to pay to determine what amount each condo owner owes monthly.
The declaration - one of the two legal documents that create a condo corporation - will provide information about common expense fees and how each unit will pay for them.
Some of the information found in the declaration includes:
- The proportions, expressed in percentages, of the common interests allocated to each unit;
- How much each unit will pay for common expenses, expressed as percentages;
- Which parts of the building will be exclusive-use common elements, which include but are not limited to balconies;
- The responsibilities of owners and the condo corporation to repair the units and common elements.
What Do Condo Maintenance Fees Cover?
Maintenance fees cover the ongoing maintenance and upkeep of all common areas in a condominium. Each month, a portion of this fee is also set aside to grow the development's reserve fund.
Common expense fees cover many things, including:
- The maintenance of hallways and lobbies;
- The servicing of elevators;
- The maintenance of indoor and outdoor amenity areas;
- The upkeep of facilities shared with other condo corporations, such as a parking garage;
- Concierge services;
- Roof repairs;
- Snow and garbage removal;
- Common area cleaning.
Common expense fees also cover the administration required to manage the entire condominium as well as property insurance. While a condo board of select residents manages some condos, others are managed by a private company that pays for their work. When choosing to buy a condo, make sure you check its amenities before finalizing your decision. Remember, you are going to pay for the upkeep of these amazing perks (such as a pool, media room, or fitness centre), so you want to make sure they are something you or a tenant will value and use.
Defaulting on Condo Maintenance Fees
According to Ontario's Residential Condominium Buyer's Guide, owners who fail to pay their required common expense fees will have a lien placed on their condo unit by the condo corporation. This lien covers the amount owed plus interest and any legal costs the corporation has incurred while trying to collect your fees.
A condo corporation has three months from the date of default to register a certificate of lien, and ten days' notice needs to be given to the condo owner before the lien can be registered. Defaulting on your condo fees is seen as similar to defaulting on your mortgage and is treated in the same way.
How Much Are Condo Maintenance Fees?
The cost of maintenance fees varies depending on:
- The type of amenities your building has;
- The size and age of the property;
- Whether there are multiple buildings in your complex;
- The size of your building (low-rise, mid-rise or high-rise).
Maintenance fees tend to be higher for older buildings as these types of properties will generally require more repairs. A red flag to look out for is an older building with significantly low condo fees. This can indicate the building isn't being looked after as it should be.
What is a Reserve Fund?
A reserve fund is a fund condo corporations use to fund major repairs or the replacement of common elements. The Condo Act requires all condo corporations to have a reserve fund. An adequate reserve fund and proper use of those funds is critical to maintaining the structural integrity of the condo corporation’s property. Condo corporations must collect contributions to the reserve fund from owners as part of their common expense fees. A reserve fund is essential, and its size and health can be a good indication of how well a condo development is being managed.
As mentioned, the condo corporation will create a budget for every fiscal year but if for any reason there is a budget shortfall, perhaps for an unexpected event such as a major repair, the condo corporation may request a special assessment to cover those expenses.
Under the Condo Act, you are required to pay your unit’s share of these extra common expenses as a one-time fee. You will pay the same percentage, (but not the same amount), for this fee as you do for your regular monthly condo fees.
Examples of unforeseen major expenses can include repairs related to flooding, the repair of major equipment, and costs related to legal proceedings.
What is a Condo Status Certificate?
A condo status certificate provides a summary of important information related to a condo's financial status. Before you purchase a mature condo, reviewing the development's status certificate is important. This document will include information about the current maintenance fees and any large fee increases that might be coming soon.
This document also details the condo's budget, any legal battles the development has faced, the status of its reserve fund, and the building's management contract. You have to pay for a status certificate, but the information found in it can be invaluable in helping you make your purchase decision.
When purchasing a pre-construction condo, you don't need to worry about reviewing a status certificate because the building has yet to be constructed.
Will My Condo Maintenance Fees Go Up Each Year?
Condo maintenance fees are determined by the condo board and can go up at any time according to the board's decisions. Generally speaking, condo fees rise with the rate of inflation and as such, you can expect them to go up a bit each year.
When you purchase a pre-construction condo and the Condo Board takes over the annual budget from the developer or builder, your monthly maintenance fees may increase a bit more than inflation. This is because the developer may have overlooked some expenses in their first-year budget projections.
While condo owners naturally don't love the idea of rising fees, fees that are kept too low will result in a development not being able to afford its required maintenance which can be dangerous. Condo fees that go up each year ensure a building is well managed and that the development is in good financial standing according to its needs.
The Benefits of Purchasing a Pre-Construction Condo
When you purchase a pre-construction condo, you benefit from owning property in a newly constructed building. Pre-construction buyers stand to benefit and can gain additional peace of mind that doesn’t necessarily come when purchasing a resale condo. A new building typically comes with less to fix. Sudden unexpected expenses are less likely to arise, just as they are when purchasing a brand-new house, which is always good news for the buyer.