Thoughts on buying a new condo in Alberta

The purpose of this article is to share some thoughts for people thinking of buying  a new condo, who haven’t done so before.  It is based on my experience working for a condo development company, where I did walkthroughs with purchasers.  It was surprising how many people did not know how the industry works and what to expect.

Most new condos are sold (or there’s an attempt to sell) before the condo is built.   So, as a buyer, you really don’t know when it will be built.  Fortunately, the new Condominium Property Amendment Act will hopefully improve things, by requiring set dates for completion, but it won’t fully solve the practical reality that delays happen (even after it is fully implemented).  Nobody can guarantee absolutely a building will be built by a set date.  Even if you can get your money back, you’ve still had your capital and your life disrupted for a lengthy period of time when things aren’t completed.  Also, if real estate prices go up, you probably don’t want a refund on your deposit.  You just want your home built on time.

The next reality of new developments, is they are generally still being developed when you take possession.  Unless the property is 100% done when you agree to purchase it, it may not be 100% done when you take possession.  That means have construction on the project after you have moved in your new home.  It probably even means things being fixed in your individual unit.  Some people just never realized their family would be living in the middle of a heavy construction project.

It goes without saying you need to read your contract.  But, it does need to be said that a contract is only worth something if you are actually prepared to go to court to enforce it.  Any developer will without hesitation go to court to enforce a purchase agreement.  But, it is daunting task for a purchaser.  Often, a purchaser’s lawyer does little for them, except process paperwork.  Everyone knows to hire a lawyer, but not everyone knows to actually use them for what they’re good for advice, and action.  If you have the funds and willingness to sue if needed, don’t buy a condo that has not been built yet.

If you have already purchased a new condo and have encountered deficiencies, what should you do.  Document, document, document.  Make sure you go to your prescribed pre-occupancy walkthrough with the developer.  Take pictures or video of all problems.  Take your own notes of issues.  It’s best to have at least one person with you, so one can record things, while the other talks to the developer’s representative.  Repeat that when you have the possession day walkthrough.  After you’ve moved in, you’ll find more problems.  It’s normal.  Put everything in writing.  Keep records of all your communication.

Can a Condo Corporation in Alberta ban renters?

No, in Alberta, the owner of a condominium unit is always allowed to rent out their unit.  There is nothing a Condominium Corporation can do prohibit this.  Section 32(5) of the Condominium Property Act makes clear no bylaw can restrict a unit owner’s freedom to rent out their unit.

Often there’s a desire to restrict renters, as they are perceived as being problematic and unaccountable.  But, in fact, the Condominium Property Act gives the Condominium Corporation all the power it needs to properly manage all units, whether they are rented or owner occupied.  One simple means to protect itself, is the power to require a deposit for rental units.  The deposit can be as high as one month’s rent.

For serious problems with a tenant, it is actually possible to evict a tenant without the unit owner’s consent.  If a tenant is damaging the common property or in violation of bylaws, they can be evicted with one full calendar month’s notice.  Excessive damage or presenting a danger to other other person on the proper, may justify an earlier eviction being approved in court.  The relevant provisions of the Condominium Property supersede any lease with the owner, and the rights the tenant would normally have under the Residential Tenancies Act.

So, overall a Condo Corporation actually has more powers over a rental unit, as these powers are in addition to the powers it has for all units.  So, for instance, if a tenant violates a bylaw that carries a fine, the owner of the unit is liable to pay the fine in exactly the same way as a unit owner would be if they personally violated the bylaw.

 

How can condo arrears be collected?

A fairly common problem for Condominium Corporations is collecting condo fees that have gone into arrears by the unit owner.  In Alberta, the Condo Corporation is in a strong position on this matter, and has a few tools at its disposal.

The most important fact that protects the Corporation is that condo fees are attached to the unit, not the owner.  That means if somebody manages to sell a unit with condo fees owing, the new owner becomes liable for them.  Because of this, buyers, and their mortgagees will ensure that all arrears are fully settled before the close of a purchase.  This is true, even if the Corporation fails to register a caveat against the unit.  When a unit is sold, property taxes are given first priority, next comes condo fees (with interest), then comes the first mortgage, any other mortgage, and lastly the seller gets what’s left.

Notice, I mentioned the condo fees are due before the mortgage.  That’s important.  Because of this, the Corporation can often get paid condo fees in arrears from the first mortgagee (usually a bank).  How?  Simple run a title check on the unit, identify the first mortgage, and send a registered letter asking for payment of outstanding fees.  Surprisingly, this often works.  The mortgagee can pay the amount and simply add the amount to the unit owner’s mortgage.

If the unit is being rented out, the Condo Corporation has the right to ask the tent to pay any rent to the Condo Corporation up to the point the condo fees are covered.  The amount paid is then reduced from the tenant’s rent payable to the owner.

Next is voting.  If a unit is over 30 days in arrears, it can not vote in a general meeting of owners.  Also, the unit owner is prohibited from sitting on board of directors.  That has little impact in a large Corporation with many units.  But, is significant for smaller Corporations.  Only those paying condo fees can decide how to spend them.

Next is placing a caveat on the unit.  After 30 days the Corporation has the right to file a caveat for the amount of the arrears and any interest.  As mentioned, this last step is not necessary to enforce a claim.  However, its a good tactic, as it gets notice.  Anyone searching the title of the unit will see the caveat, and that will effect a refinance or sale transaction sooner.

Of course, before all of this, the best thing to do is to simply ask for the money owed.  Do it in writing, and make reminders.  Be sure to keep excellent records of what is owed.

 

Should we hire a condo management company?

For larger Condominium Corporations its a pretty simple and a pretty obvious choice.  You practically need to have a professional management company to run things.  But, for smaller condos its a tough choice.  This post is about that question.

It’s important to keep in mind what a management company does and doesn’t do.  While this varies by company, there are some common points.  The key point is that your management fees pay for just that, management, and not much else.   So, they don’t pay to cut the grass.  They pay for a manager who hires the grass cutter and writes a cheque on the Condo Corporation’s bank account.

The key thing to note about a manager is they are an agent.  That means they act on your behalf, and you (the Condo Corporation) are liable for what they do, even for good faith mistakes.  Let’s take an example:  suppose you have a pipe burst and flooding.  It’s great to have a manager that will respond to emergency calls at night to deal with it, instead of waking up board members.   However, there’s a catch.  Whatever that manager does, such as hiring a firm to cleanup the aftermath, is the responsibility of the Condo Corporation to pay for.  The Condo Board can’t renege on lawfully made commitments that could be enormously expensive, even if they were poor judgments.

Also, keep in mind when a management firm advertises 24/7 service, what they likely mean is that if you call after hours the call goes to an answering service who in turns call the on-call property manager out of the office, who then deals with the matter by phone.  That could be what you want.  But, for small Condo Corporations an on-site board member may work just as well.  Often, they’re probably up and awake if an emergency (like flooding) is happening anyway.

A potential mistake is often thinking the management firm is a huge time saver for the board.  In a way that’s true, but it’s a potentially dangerous view.  A good management firm’s real benefit is its expertise, not the time saving to the board.  A good board will be actively involved in major decisions regardless of whether they have a management firm.  Neglecting those decisions, just because they have a management firm is dangerous.  A good property management firm will do its best to keep the board involved in key decisions.

One should consider how many other properties a property manager of a management firm has.  Your property is far from alone especially if its small.  A property manager can actually slow decisions down for a small condo corporation, as often the board can easily meet on their own and agree on action, but may be frustrated in getting time and attention from the property manager.  So, say you hire a property manager who works 40 hours a week and they have ten properties.  That’s only four for your property.  So, it’s not a huge stretch to match that quantitatively.  It’s not about the quantity of hours, but the quality.  What they do in those four hours might be more than the board can do in any amount of time.

Simple common sense says, if you are going to hire a management company, look around.  Get at a few quotes from different management companies that have experience with your type of condo (e.g. similar size).  Asked detailed questions of what they do and don’t do.  Ask about fees, obviously, and the rules of cancelling a contract.  There can be nasty surprises when cancelling a contract, if the board didn’t read the contract’s small print carefully enough.

Of course the best source is trusted references.  So, ask people from other condos who they’re using.  Be careful though.  There’s a tendency for there to be a love-hate cycle with property managers.  A condo corporation grows unhappy with one manager, hires a new one that seems great initially, but the new property manager becomes swamped like the old one, and the cycle repeats itself.  So, a good reference is only really good if the condo corporation has had the management firm for some time.

Whatever you do, what every Condo Corporation need is a good board of directors.  Nothing can replace that.

What is an estoppel?

In Alberta an Estoppel Certificate is a document created by a Condominium Corporation which sets out certain information, such as amounts owing on a unit.  This post discusses estoppels and more broadly discusses what a Corporation has to disclose to an entitled party (which is an owner, purchaser, or mortgagee).  If you want to create an estoppel, please use the Condo Estoppel Creator.

A potential buyer or mortgagee of a unit will want an estoppel, so that they can know with certainty what liabilities come with acquiring a unit.  Information in an estoppel is guaranteed to be true.  The Condominium Corporation is prevented (“estopped”) from later changing the declarations in the estoppel, even if an honest error was made.  This has enormous implications.  Suppose a unit was behind tens of thousands of dollars in condo fees but is given a “clean” estoppel (it showed nothing owing), the Corporation would be out of all of that money, and have no way of collecting, even if it was an honest mistake (suppose the person who issued it wasn’t familiar with the history of the unit).  Keep in mind that condo fees, special assessments, and arrears all are attached to the unit, not a specific owner.  They move from seller to buyer.  If a buyer acquires a unit with arrears, the buyer assumes that obligation.  So, a smart buyer will always want to ensure a unit is free of any arrears (or if there are any, they’ll insist they be settled in the closing process).

What information is in an estoppel?  In Alberta, that varies.  This is partly due do the fact that the word “estoppel” is not defined in the Condominium Property Act.  Section 39(6) lists certain items that must be provided on request to an entitled party.  The Condominium Corporation must disclose the amount of condo fees and how often they are paid (usually they are paid monthly), what if any arrears (or over-payment) exist on those fees, and the interest owing on such arrears.  That’s it.  In its narrowest definition, that’s all that goes on an estoppel, as that is all the Corporation is “estopped” from revising information on.  As the Act says “the certificate is conclusive proof of the matters certified in it”.

Now, if you look at the typical Estoppel Certificate in Alberta, you will see more than this.  That’s because of Section 44 in the Act, which has other items that must be disclosed on request of a qualified party.

Some of this extra stuff might appear on an estoppel or it might appear on “Information Letter”, sometimes called a “Manager’s Letter”.  Sometimes an estoppel will reference other documents that are included or available separately.  Regardless of what anything is called, or how it is given, if the information is requested by a qualified party (owner, buyer, or mortgagee), it must be provided within 10 days.  While, the Corporation is not “estopped” from making changes Section 44 information, there’s still a legal duty to get the facts right the first time.

Section 44 of the Alberta Condo Act requires the following:

  • What are the condo fees, special assessments and any arrears, including interest.
  • Details of any legal action filed on the Corporation, unsatisfied judgement, or written demand that’s greater than $5,000 that could result in a legal action.
  • A copy of any management agreement
  • A copy of any recreational agreement
  • Details of any post-tensioned cables in use.  Most buildings don’t have these.  If yours does, it should have a current engineers report on their status, and that report should be released to satisfy the requirement.
  • The current  budget and most recent financial statements of the Corporation.
  • Bylaws of the Corporation
  • Minutes of the last Annual General Meeting
  • Amount of the Reserve Fund
  • Indicate what the unit allocation factor is for unit and how it was determined.  Every Condominium Plan should indicate what each unit’s factor is out of a total of 10,000 factors.  They might be allocated based on suite size or an equal basis.  You need to check the plan to see which is used.  While a buyer should always want to know what the unit factor is, why it is what it is may not be that important, and is typically not asked for (but it could be).
  • Any structural deficiencies in the building.  This is a tough one because of the definition of what a deficiency is.  All buildings have problems, but what has to be disclosed is up for debate.  If you’re uncertain about something, you may wish to talk to a lawyer.  Properly disclosing this, like other information, will help protect the Corporation from a lawsuit later on.
  • A copy of any lease agreement or exclusive use agreement with respect to the possession of a portion of the common property, including a parking stall or storage unit.
  • Section 48 of the Act requires an Insurance Certificate be provided on request.

Importantly, even though it is not made perfectly clear in the Act, an Estoppel (or Information Letter) should always indicate any known special assessment that is upcoming.  A Corporation wants any potential buyer to know what money is owed on the unit, or will be owed on the unit, to ensure it gets its money without dispute.

Finally, if you want to create an estoppel, you can use the Condo Estoppel Creator.