Buying a Condominium in Toronto is no easy task. Finding the right building is tough; finding the right unit in the right building seems, at times, insurmountable. When looking to purchase that “dream condo”, it’s important to do proper research.
Understanding Condo Fees is crucial to success in your purchasing journey. As with most properties – not all condo fees are created equal. A full comprehension of the topic can make the difference between a successful purchase and a home buyer’s nightmare.
What Are Condo Fees?
Condo Fees (legally referred to as Common Expenses), are a monthly fee payable by unit owners to the Condominium Corporation. They are mandated by the Condominium Act. Some buildings may refer to condo fees as “Maintenance fees”, or “Common Elements fees”.
The amount payable is proportionate to that unit’s apportioned interest as described in the condominium’s declaration. Lockers & Parking units, if owned, can also require contribution. The proportion breakdown is typically contained in the Status Certificate.
Owners cannot be exempt from paying common expenses. Default can lead to a condo lien being placed against the unit. Read more on common expense default here.
Condo fees can be charged in Common Elements Condominiums – condos with no units. This is very common in Parcels of Tied Land (POTL).
What do Condo Fees Cover?
Condo fees are essentially a monthly prorated contribution to building operating expenses. Operating expenses vary by condo corporation and can include things like maintenance expenses, reserve fund contribution (see below) building insurance, hydro, water, and even internet.
It’s important to check what is included in the condominium fees. A higher condo fee in one building doesn’t necessarily mean the building is more expensive – it may just include more operation costs. A unit with additional or larger lockers & parking spaces may also pay more.
When can Condo Fees Increase?
Regular condo fees typically increase once per year. According to the Condominium Act, the common expenses must be stated in the condominium’s declaration. This document will also include each owner’s share payable to the common expenses.
The condo fees are calculated by combination of an operating contribution and a reserve fund contribution.
The operating contribution is based on the annual budget of the condominium corporation – which must be detailed and shared with the owners. Adjustments to common expenses occur usually at that time.
The reserve fund portion is contributed to the condo’s reserve fund.
Each Condominium is required to have a Reserve Fund. This fund is essentially a large bank account with sufficient balance to cover the cost of major repairs.
A mandate of Condominiums in Ontario is to undergo reserve fund studies. A reserve fund study must be performed shortly after creation of the condo corporation and, subsequently at least every three years. These studies outline a 30 year plan of predicted repairs and replacements necessary as well as their inflated costs.
Based on the findings of the reserve fund study, a condo corporation is expected to have its owners contribute so that the balance of the reserve fund is not depleted in the event of major repairs.
According to the Condominium Act, initial contributions to a reserve fund must be 10 per cent of the operating budget. After the initial study, the contribution amounts may change dramatically.
Most condominium fees rise substantially when this occurs (in the first 1-2 years of new condo ownership). It is important to ask if the initial reserve fund study has been performed and, what the associated increase in fees will be.
At times, it may be found that the reserve fund is not sufficient and contributions to common expenses will not replenish it fast enough. In this case, the board may choose to levy a special assessment.
These special assessments are usually 1-time payments (can be broken into smaller interval payments) to replenish the fund, pay for a particularly large repair, or, pay into proceeds of a lost lawsuit.
Special assessments are considered common expenses and refusal to pay can be considered expense default.
What does a Condo Fee Include?
The operating contribution to a condominium budget can vary widely. Some buildings include hydro, water, & cableTV/internet in their common expenses. Other buildings may choose only to include the bare minimum (building insurance & maintenance/management costs).
On the MLS – the inclusions in a condo fee are clearly stated. It’s important to check which expenses are included in your payments.
This will also make a difference when applying for mortgage financing, as items exempt from a fee will be estimated for debt service calculations.
Are Condo Fees Based On Square Footage?
The apportioned common expense contribution, or condo fees, are not always based on the square footage of a unit – though it is certainly a factor. Other factors that may influence the proportion payable include:
- Exclusive use of any common elements (for example, a private terrace or balcony)
- Parking space (size & location), locker size
- Services or amenities available to a unit – i.e. a secondary private elevator
The most accurate way to check the proportion of condo fees payable is via the declaration or status certificate.
Are Condo Fees Subject to GST/HST?
Residential condo fees are not subject to GST or HST. The Excise tax act specifically exempts residential condominium units. However, commercial condominium units are subject to GST or HST unless the small supplier rule is met.
The Small Supplier Rule dictates that a supplier collecting less than $30,000 per year does not need to register and collect GST/HST.
Can I Expense my Condo Fees?
If you are a real estate investor, you are likely wondering if common expenses can be deducted from rental income. Generally, this is permitted as the fees would be considered, in essence, a cost of goods sold. However, expert accounting advice is recommended in this field.
Condo Fees & You
Condo fees are a complex and diverse topic and should be thoroughly understood prior to purchase. If you have questions about condo fees, Contact ReaLawState for assistance throughout the buying or selling process.