When you’re looking into buying a new condo, the asking price isn’t the only significant number to look at. In addition to sometimes unanticipated fees (such as home insurance – yes, required whether you’re personally moving in or renting out your suite, land transfer taxes, closing costs, lawyer fees.. and yes, you do need one – check out our condo talk video on why ) condos also have something called maintenance fees.

A friend of mine, recently pointed out that it was in fact the maintenance fees that were the determining factor in which of two contending buildings she ended up choosing.

One building had a much higher monthly maintenance than the other and what she couldn’t understand, was why one could be so drastically different, given that the two buildings were part of a phased community (with shared parking) and managed by the same Property Management company.

Well, there are often worthy explanations and the best first step is getting down to the basics and understanding maintenance fees in condo living.

Maintenance fees are also referred to as common area expenses or condo fees. The Condo Act sets out what can be defined a common or shared area but it essentially relates to all costs that are related to managing and maintaining areas that are not privately owned, like the lobby, corridors, party rooms, driveway, which are specified in the condo’s Declaration or Condo Docs.

Homeowners are responsible for paying this monthly fee monthly as a way to cover their portion of the overall expenses of the Corporation. The way it’s calculated is most often based on the square footage of your suite. For example, if the maintenance fee is $.50 per square foot (although in GTA they’re known to range from $0.30 to over $1.00)  the maintenance fee for a 1000 sq.ft condo would be $500/month. Most developers will list monthly maintenance fees and you simply have to divide that dollar value by the square footage to calculate the cost psf.  It’s worth noting that in some parts of the world other criteria have an impact on the fees. If you have a condo in NYC for example, location can have an impact and a Penthouse would generally incur higher fees than a suite on a lower floor.

So what’s covered in the condo fee? Well, it varies according to the community. It generally includes things such as the salary of Property Management, maintenance of common areas aka shared spaces (and yes, even if you don’t plan on using them you still have to pay for them), contributions to a reserve fund for larger repair items, liability insurance (for the corporation grounds as whole) and utilities. As for the latter – that varies as well , but it seems that newer buildings have individually metered hot water and heating so that residents pay for their individual usage. Some newer buildings are also starting to include bulk internet as a utility and offer highly discounted rates. Future concepts I’m starting to hear tossed around are digital storage as a bulk utility as well.

So how are fees determined?

If it’s a new building, the CEA (Comment Element Adjustments) is part of the Condo Docs. The developer (often called the vendor) prepares the first budget for the first year estimating the cost of the common expenses.Moving forward, the amount is reflected in the condo corporations budget which is prepared by a professional financial auditor for the Board.

This sample image shows the percentage allocated to each purchasable unit including allocated parking/ locker and suite. These are then assigned a percentage of the projected annual budget, as each owner actually owns a percentage of the condo community as a whole, including their shared spaces (common elements and amenities). The size of your ownership is the equivalent to percentage of the operating budget that you’re responsible for. That calculated dollar value is then divided into a monthly amount.

Screen Shot 2016-04-09 at 4.28.16 PM
Sample Image for Demonstration Purposes used at Homebuyer seminar

There are of course some factors that affect maintenance fees. The one most often comes to mind is amenities. Their usage and the cost of their maintenance is part of the fee. The majority of today’s condos in Toronto have amenities ranging from movie theaters, party rooms, fitness facilities and more (or less). One might originally think that these aren’t necessary, but they’re a huge appeal in the condo lifestyle.

Size can also contribute. The economies of scale principal basically kicks in here. It’s a simple fact that the more suites you’re sharing the cost with, the less you need to pay.  A budget item of maintenance fees shared among 30 suites for example,  will be a more significant burden than if it’s divided among 300.

Some people believe age of a building contributes as well – but that’s an industry myth. If a condo is well run and maintained, stats can show that there is no discernable pattern between the age of a building and maintenance fees per square foot. This particular interview claims buildings in GTA built between 1975 and 1980 have an average maintenance fee of $.57/psq. (Two cents lower than the city-wide average)

Screen Shot 2016-04-10 at 10.03.40 AM
Source: condos.ca

There are other myths that have been challenged, in addition to age. In addition to busting the myths however, there are some general words of caution.

  • Beware of extremely low fees. This could be an indication that expenses aren’t propertly budgeted for.
  • Hire a lawyer to clarify what is and isn’t covered in your fees (heat, hydro, internet)? Here’s one GTA lawyers advice on condo fees.
  • Consider Fee Increases. While they’re recalculated each year in comparison with the building’s annual operating budget, understand that there is no general restriction as to how much they can increase and that they are not capped. They’re significantly impacted by the Board and resident philosophy on how to run the community as well as the Reserve Fund Study  (reviewed at the AGM – Annual General Meeting & mandated every three years)
  • Ask about any Special Assessments and Reserve Fund studies and don’t be afraid to ask questions (timing etc.). A status certificate (which you’re able to ask for) is like a financial report card for the corporation and will (should) cite any near future predictions regarding increases in the maintenance fees and major work required.
  • Ask about the Directors, when the last AGM was and what the turnout was like. Ask for minutes of the most recent AGM to see what residents are requesting and about optional active community resources (running or book clubs etc.)
  • A competent Property Management company and Board of Directors also helps to ensure that your community is in good fiscal condition.

So as for my friend, why were the maintenance fees so different in similar buildings of  the same age and Management. This is a great case study demonstrating that maintenance fees are clearly not a one-size-fits-all approach.A careful comparison between the phases showed that the number of suites in each were in fact different and that the one with the higher fees had a lower number of suites.

In addition, after the buildings had registered and the building established their independent Boards, they made different decisions for their community that created the difference in fees. The one with the higher fees also had hired an additional security guard as well as commissioned extra cleaning services, that went above and beyond what was originally established. It comes down to preferences. The board and community have the right to determine what they want to spend their money on.

Most potential condo buyers have an initial reluctance to the concept of condo fees. The reality is that they’re often misinterpreted and not clearly understood. Condo fees however have a great deal to do with the major benefits of living in a condominium. And while it sounds like a financial burden at first glance, further analysis may demonstrate it to be a savings, when you break down the included items (upkeep and maintenance as well as amenity items, such as gym memberships and party venue rentals). It’s also helpful to remember that the fees are not a source of profit for your condo community – and that condo’s are legally not-for-profit entities.

Feature Image Source: http://www.getklaiman.com/condo-fee/

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s