Buying a condo? What red flags to watch for
| Read time: 3 min
When buying a condo, the two most important documents to review are the Reserve Fund Study and the Disclosure Statement.
The Reserve Fund Study is essentially a plan for the long-term funding of the shared components of the Condominium Corporation. This may include items such as the roof, windows, exterior paint, common corridor carpeting, mechanical systems, plumbing systems, parking lot etc. The report provides a path for budgeting for those longer-term expenditures which do not occur every year but that the owners collectively are responsible to replace and repair.
The Reserve Fund Study (RFS) is a valuable tool for budgeting and for planning the repair and replacement schedule. For Corporations completing their first report, the deadline is 3 years from the stamp date on the Declaration. Following this, a study should be completed every 5 years.
The RFS will state the reserve fund balance at the date of the study, and for each year of the study, it will indicate the ideal balance for the reserve fund, the current anticipated repair and replacement costs for each given year, and an opinion on the adequacy of the current rate of funding for the Reserve Fund.
When deciding total contributions to the Reserve Fund, the Directors of the Corporation must consider the Reserve Fund balance that is recommended in the latest RFS.
The cost of preparing an RFS Fund Study costs depends on the size/scale of the Condominium Corporation and what common area items that the corporation is all responsible for. Typical fees can range from a few thousand dollars to over ten thousand dollars for a very large complex. The time frame for completing will typically take about one month for the most straightforward assignment, to several months for more highly complex Condominium Corporations.
The Disclosure Statement
Hang on to your hat, because the Disclosure Statement can be a large document that provides many details that include:
- Who the property management company is
- Details on the type of building and how many units are in it
- Amenities the property offers
- If there are any historic or heritage designations by a government or municipal authority that restricts use/development
- If there are any known zoning, health, occupancy or environmental violations, bylaws or regulations
- How many units are currently known to be rented or leased
- Additional costs an owner can expect outside of the typical condo fees/reserve fund fees (documents, parking, locker, laundry services, remotes, fobs etc)
- What the owner is responsible to pay for – ie: hydro/water/sewer/phone/cable/property taxes etc.
- Any major expenditures the Corporation has approved outside of the usual expenses
- If the Corporation plans to make any substantial changes to common elements, including details of and estimated cost for such
- Who the Auditor for the Corporation is or if it is referred to the Board for selection
- Current Reserve Fund Balance and when the last Reserve Fund Study was completed
- Pet restrictions/allowances
- Smoking restrictions/allowances
- Maintenance and repair responsibilities
- Insurance responsibilities
- Each unit’s share of common expenses
- If there is a levy, and amount of such, for unit owners wishing to rent/lease their units
- If fines are permitted to be imposed, maximum amount of said fine and maximum frequency for imposing a fine
- If there are plans to amend the legal documents (Declaration/bylaws/rules) and if so, details of such
- Management agreement – length of term and pricing and other agreements as applicable (ie: insurance trust agreement/mutual use agreement/agreements between Corp and another Corp/agreement to loan money etc)
- Unit owners voting rights
- Warranty coverage, if any
- Legal actions – Insurance claims – warranty claims, if any, and details of such
- If the Declarant Board has turned over control of the Corporation to a Board elected by the unit owners
- Directors and Officers of the current Board
- Parking stall details associated to the given unit
- Phasing building details, if applicable
- Intention to amalgamate
Details on the right to cancel within cooling-off period
by Sabrina Lewis, Property Manager