Condo Documents…Dig Deep

 

This week I have been in 2 situations where I was representing the buyer of a condo and serious problems have come up in the condominium documents. One showed a disorganized condo board facing legal trouble and the other exposed a lump sum of about $60,000 being due from each owner to correct problems in the building. In both cases the buyer walked away unscathed because of a thorough investigation of the condo documents

If you are in the market for a condominium, you should expect to receive a large stack of documents outlining the business of the condo corporation and condo board. As part of your due diligence before finalizing your purchase, you should review the documents to ensure that the corporation, board and finances are in good shape. Keep in mind, every condo complex is different and every set of condo documents will include different items. Below I have listed some of the main things to look for. Keep in mind this is not an exhaustive list but it will give you a basic idea of some of the major things to look for.

Bylaws – Read through the bylaws to be sure that your lifestyle fits with that of the complex. For example, if you have pets, be sure that they are allowed in the complex. If you run a home based business, be sure that there are no bylaws that might prevent you from running it properly.

Meeting Minutes – Look through the minutes of all of the meetings that have occurred for the past year. Watch out for important items being pushed from meeting to meeting instead of being dealt with quickly. Watch for clear roles defined for those on the board so that when problems arise there is someone designated to take care of it. Watch also for talk of any deficiencies in the complex that could cost large amounts of money to rectify. If a special assessment (a major expense where each owner has to contribute a large lump sum of money, like the $60,000 example above) is coming, it will show its head first in the meeting minutes.

Financial Statements – The basic idea is to verify that the condo board is operating in the black. Be sure they are not spending beyond what they are bringing in. It is wise to have an accountant look over the financials if you have any doubts.

Reserve Fund Study – Condo boards must have a reserve fund study completed every 5 years. A qualified inspector looks over the whole complex to determine problems and project maintenance needs in the future. A plan is then set out that includes a budget to take care of these needs as they arise. Money is held in what is called the reserve fund to pay for these things. Be sure that the plan is being followed and that the reserve fund balance is currently in line with what the budget calls for. If the reserve fund is not sufficient, a special assessment could be called. This would mean each unit owner contributing their share of the shortfall.

Information Statement – The information statement will confirm the condo fees for the unit you are purchasing, that the unit does not owe any money to the corporation, and that the corporation is not facing legal troubles. It will also tell you the ratio of rented to owner occupied units and if any special assessments are coming in the future that have not yet been levied on the unit.

These are some of the major things to look for and they are where I see most problems arising. However, be sure to look through everything that you receive in your package of condominium documents. If you are unsure, there are companies that will review the documents for you and give you an unbiased interpretation.