Unit Factor allocation and variable costs

Question

We are working with a developer to prepare preliminary budgets. One condominium plan; 94 townhouse units; 92 coach home units. The townhouse unit owners pay all utilities, except common area lighting (parking lot). The coach homes are 8 to 12 units per building with common heating. Surface parking is common to both types, as is grounds maintenance.

We have two budgets; one each for the two styles of buildings. The question posed to us is how to weight the utilities components when the surveyor calculates the unit factors. Have you encountered something similar? And, can you share any information?
Thanks for your help.
L. H. Property Administrator

Answer

Here are two suggestions on how to handle this difference in the utility usage.

1. Calculate the unit factors by using the total expense budget for the separate types of units instead of using the area. i.e. determine the cost per unit per building type (total budget for townhomes / number of townhouses/12) and do the same for the coach homes. This number becomes the unit factor for the different types. Using this method the unit factors are the same for each unit in the townhouses or coach homes so this only works when the units are comparable in the amount of utilities each would use.

2. Use the approximate area as the basis for the unit factor allocation. To deal with the inequity in condominium fees put a formula in the bylaws stating how the operating costs will be allocated. (i.e. based on separate budgets for the different types of buildings)

The proposed bylaws will require this wording or a bylaw amendment would be required.

Does a Corporation need to Audit the Books?

Question:

Does the condo corporation have to have an annual audited statement or simply a financial statement? There is quite a difference in price between both.
Hear from you soon.
G. R.

Answer:

Dear G.R.
The answer to the question of whether a condominium corporation requires the financial records to be audited annually or not is found in the bylaws of the corporation. You will typically find this information in the bylaw section "Duties of the Corporation" or "Powers of the Corporation".

In the case where the bylaws do not require an annual audit it is advisable that the corporation have an independent financial review and report completed by a professional accounting service at their fiscal year end.

Should your corporation require an annual audit, be sure to follow the bylaws regarding selection of the Auditor.

What is a Bare Land Condominium?

Questions:

In a Saturday issue of the Calgary Herald earlier this Month, a number of "Buying Terms" were defined and the definition of a Bare Land Condominium included the statement that "only the land is condominium". What does that mean?

 

In your article in the Calgary Herald on March 12th, 2005 you state that "In a bare land condo, it is possible for owners to be responsible for building repairs and replacement?" I assumed you meant that these owners could be totally responsible for building repairs and replacement for the building on their own unit if this is what the Bylaws provided for. Does this mean that a Condominium Corporation could walk away from its present obligations to maintain buildings on owner's units by changing their Bylaws to exclude this responsibility?
Regards
J. E.

Answers:

Great Questions J. E.
There is a lot of confusion out there about what bare land condominium is and who is responsible for what and this is not an easy concept to write about.

 

Your first question - What does the statement mean "only the land is a condominium"?

The boundaries that determine the area of a unit in a bare land condominium are based on pins (stakes) in the ground, marking out the area of land that forms the condominium units, therefore the condominium is technically "land only".

These land areas become the units of condominium which are owned by way of a title. All areas inside the land unit, including any buildings, are owned by the owner of the condominium unit of land and are the responsibility of the owner, subject to any restrictions registered against that title, or the condominium unit by way of a bylaw.

Question 2

In a bare land condominium, it is possible for owners to be responsible for building repairs and replacement. I assumed you meant that these owners could be totally responsible for building repairs and replacement for the building on their own unit if this is what the Bylaws provided for. Does this mean that a Condominium Corporation could walk away from its present obligations to maintain buildings on owner's units by changing their Bylaws to exclude this responsibility?

Answer

In all forms of condominium, including bare land, the Unit of ownership comes with a bundle of rights that is the same as any real estate that is owned in Alberta, The bundle of rights gives an owner the right to rent their unit, to transfer it in their will and to do with it whatever they choose, subject to any restrictions registered on the title, or by way of a condominium bylaw, or a municipal bylaw.

In a bare land condominium anything contained inside the unit is the sole responsibility of the owner, provided there are no restrictions registered on the titles to the unit. By amending the bylaws the Corporation can transfer the responsibility for maintenance from the owners to the Corporation. They would require a 75% majority of the owners registered on title and representation of 7500 unit factors to do this. The corporation must maintain and continue to provide insurance for Directors and Officers and to maintain any property it owns, and the common property.

Although in a bare land condominium this flexibility is available, I suggest the issue be investigated thoroughly, as the marketability of a condominium where there are no services can be impeded. This is not always the case, as in acreage condominiums, however, the vast majority of condominium buyers choose condominium living for the lifestyle and that means services.

The other factor is in keeping the property clean, tidy and the buildings maintained. In a condominium the economies of scale factor can result in great savings to an owner. With the savings plan for capital repairs and replacement being a mandatory requirement this ensures the funds are available when major repairs are required. These are a few of the reasons that the majority of bare land condominiums have bylaws that give the corporation the responsibility to repair and replace the building exteriors. All these factors need to be considered buying a bare land condominium unit.

Thank you for submitting your questions. I hope this makes things a little clearer.
Condo-Check

Who is Responsible for the Repair?

Question:

I really hope that you can help me. I am begging for your help, please. I have concerns about the mould that has developed under my hardwood floors because of a leak that my neighbor had from his washer last year. I live in an apartment style condo and the Board has insisted that I get this fixed because of the health hazard. Now I am looking at remediation (removal of mould) by professionals at my expense have been told by the Board that I then need to sue my neighbor to recoup my loses. The condo board is saying that it is my fault that mould is growing because I did not get my floor fixed by my neighbor yet and thus mould has developed in that time. I had no idea about mould issues and no one on the board or the management company made me aware of these dangers, if they did I would never of let this happen. I have since been told that the board was responsible per the Act and the Bylaws, unfortunately no one will look these documents over to prove this and I cannot clearly understand the technical jargon. Please I desperately need someone's help and you are the only place I know and trust to turn. I will pay a fee if someone could just take a few moments to confirm were the responsibility lies. I don't know where else to go. I know that the board is very inexperienced and our condo manager just moved here from another country and has already been chastised for giving me erroneous information and it is this same person that is advising the board. I very much need assistance
S.

Answer:

Dear S.
This is a situation that could happen to anyone, unsuspectedly. There is not enough information in the hands of owners and board members regarding moulds and toxins in the home, and how quick moulds can form (in as little as 72 hours). This happens to be an area of great interest to me. Here is the address to a site that provides information on keeping a home safe , which includes some information on toxins in the home www.healthyhometour.com.

With regards to who is responsible. The wording in your condominium bylaws is going to have an impact on determining who is responsible as well as the Insurance provisions in Condominium Property Act and Regulations of Alberta, and the record kept by the board of directors in attending to the original water damage repair.

The Condominium Property Act of Alberta and the Condominium Property Regulations, in particular, Part 6 which specifically states that the Corporation must place and maintain insurance against the following perils: fire; leakage from fire protective equipment; lightning; smoke; windstorm; hail; explosion of natural, coal or manufactured gas; water damage caused by flood; water damage caused by sewer back-up or the sudden and [accidental escape of water] TO BE BOLDED or steam from within a plumbing, heating, sprinkler or air conditioning system or a domestic appliance that is located within an insured building,.... And any other perils as required by bylaws.

I believe what this wording is saying is that the Corporation is to insure for the accidental escape of water from a domestic appliance, as in this case. The question remaining is was the escape accidental or negligence on the part of your neighbour? In the case of negligence the neighbour may be responsible for the damages that resulted. We are not insurance specialists, which is where this problem falls. From our years of experience I would suggest the following: Ask the Board of Directors for the information that was obtained when the leak happened and for a copy of the reasoning for their conclusion that this was an owner’s problem. Inquire as to if the corporation insurance company was notified or not? Insurance companies typically notify the board and the owners of the potential hazard of mold occurring when there are water leaks and provide assistance in preventing the damage from expanding.

Worse case, if the board did inform you when the leak occurred that you were responsible for the damage, and you did nothing, even if they did not mention future damage risks, they may argue that you would, at minimum, be responsible for the added damage that occurred when the problem was left un-remedied.

I suggest you get the mould removed as quick as is possible as your health may be at risk. Contact the insurance company that carries your personal policy. They will most likely assist you in assessing who is responsible for the damages and may cover the remedy. You won't know until you speak with them.

In the interim, obtain the information from the board. Allow them a reasonable amount of time to get this to you, 10 days should be sufficient. You may choose to have a conversation with your neighbour about what he did to remedy the problem and explore the options regarding his willingness to assisting you in the cost of the repairs, and have a talk with your personal insurance carrier.

Once you have acquired the above information, you will be able to take the appropriate action, based on the facts of the matter.

Commingling Reserve Funds with Operating Funds

We have an excellent reserve fund study that the board is following.  We have just been told by the property manager that due to excessive costs for utilites, the allocation of the amount budgeted for the reserve fund will not be the amount required in the plan for the 2011 year.  She also informed us (the board members) that there is only one account, and that they keep separate ledgers.

Question: 

Is this allowed under the legislation?   I thought the reserve funds and operating funds were to be held in separate accounts.  Is this true?

Answer:

Part 2, section 27(2) of the Condominium Property Regulation states that the neither the corporation nor any person holding money or dealing with money on behalf of the corporation is to commingle any funds that make up the corporation's reserve fund with the corporation's operating funds or any funds of any other corporation or other entity.

This legislation means that the portion of the monthly payment made by the owner that is alloted for the reserve fund in the operating budget is to be transfered to the reserve fund account immendiately.  The typical practice is that the preserve funds are tranfered to the reserve account on a monthly basis.

Section 38 (2) of the Condominium Property Act regulates the use of the money in the reserve fund.  The reserve fund is a fund designated for the repair and replacement of capital items and is not a "slush fund" for budgets that fall short or improving the property without compliance with the criteria in Section 38 of the ACT and Part 2 of the Regulation.

When does a Developer Pay Condo Fees?

Question:

I am on a condo board in Edmonton and currently the Developer has several unsold units in our buildings.  Currently there are two buildings built, one more underway.  These sold units have been occupied for a year, one in particular has occupied for 2 years.  Is the Developer responsible for paying fees on these unsold Units?

The Bylaws do clearly state that the Developer is not responsible to pay common fees "until the completion of construction of a residential building thereon and such building is ready to be used for residential purposes"  M.R.

Answer:

The question of when a Developer pays is common as there is currently no legislation in this regard.  The Bylaws do prevail.  When wording such as this is incorporated in the Bylaws, it is clear that the Developer is not required to pay condo fees until the units are ready for occupancy.

Industry practice is that the purchasers pay their fees upon taking occupancy of the units.  The cost to maintain and operate the site are paid from these fees collected and any shortfall is paid by the developer, until such time as the transfer to the Owners occurs.  At the transfer meeting the developer presents a financial statement clarifying the status of the income and expenses for the condominium project. After this meeting the developer would pay the full condominium fees for the unsold units.

Often the terms for the developers obligation to pay condominium fees is in the purchase contract as well as the Bylaws.

What is the minimum and maximum number of tenants that can be allowed in a Condo?

Question:

As a condo board what are the number of tenant allowed in a condominium?

Answer:

The condominium legislation  in Alberta does not allow a condominium to restrict tenants in a condominium.  In other words an owner cannot be restricted from renting the Unit in a condominium if they so choose.

The tenant is then governed by the Bylaws and any rules or regulations to the same extent as the owners.

Sections 53 to 57 of the Condominium Property Act provides the governance of the tenants in a condominium.  Highlights from these sections include:

  • The owner must notify the condo corporation (board) of their intent to rent and include their contact detail and the amount being charged for rent.
  • The corporation can charge the Owner a deposit for wear and tear or damage to common property.
  • The Board has the power to fine the Owner for Bylaw infractions and in cases where the Bylaws allow, the Owner could be fined equally.
  • Ultimately, the Board has the power to evict a tenant who is not compliant with the Bylaws. (based on criteria prescribed in the ACT)

Bylaws that restrict tenants in Alberta condominiums are not enforceable as the Condominium Property Act prevails.

 

 

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