Purchasing a condominium involves more than evaluating the unit itself—it also means buying into a shared financial structure. Before proceeding with a condo purchase, it’s essential to understand the financial health of the condo corporation to avoid unexpected costs and ensure long-term value and the following factors should be carefully evaluated to ensure the investment aligns with personal goals and financial stability:
1. Status Certificate Review
The Status Certificate is a mandatory document that provides a snapshot of the condo corporation’s financial and legal health. It includes:
- Monthly maintenance fees and any upcoming increases.
- Outstanding payments or arrears by the current unit owner.
- Special assessments (one-time charges for major repairs).
- Reserve fund details – balance, recent studies, and adequacy.
- Legal issues – ongoing litigation or judgments against the condo corporation.
- Insurance coverage for the building and common elements.
- Notice of Future Funding – a mandatory disclosure if the board plans to increase reserve contributions.
2. Reserve Fund Health
The reserve fund is used for major repairs (e.g., roof, elevators, HVAC). A well-funded reserve indicates good financial planning.
- Check the latest reserve fund study to ensure that the reserve fund assets meet or exceed the recommended level stated in the reserve fund study (required every 3 years in Ontario).
- Ensure the fund covers at least 25–30% of the annual operating budget.
- Look for any planned capital projects and how they’ll be financed.
- Any notice of future funding indicating planned increases.
3. History of Condo Fee Increases
- Review the past 3–5 years of condo fee changes.
- Frequent or steep increases may signal poor financial management or upcoming expenses.
4. Special Assessments
- These are extra charges levied on owners to cover unexpected costs.
- Ask if any assessments have been issued recently or are planned.
- Understand the reason and amount of each assessment.
- Frequent assessments may signal poor planning or underfunding.
5. Upcoming Capital Projects
- Review planned major repairs or upgrades (e.g., HVAC, windows, balconies).
- Confirm how these projects will be funded—via reserve fund, fee increases, or special assessments.
- Large projects can significantly impact monthly fees or require lump-sum payments.
6. Audited Financial Statements
- Review the latest audited financials and annual budget.
- Deficits in the operating fund – indicates expenses exceeding revenues.
- Interfund balances – check if funds are being borrowed between operating and reserve accounts, which may signal cash flow issues. Ask whether the borrowed funds have been repaid and what the repayment plan is.
- Large accounts receivable balance – unpaid fees from unit owners can strain the condo’s finances and lead to future fee hikes.
7. Insurance Coverage
- Ensure the condo corporation has adequate insurance for the building and common areas.
- Check if there are deductibles or exclusions that could affect you.
8. Legal and Operational Stability
- Look for any pending lawsuits or legal disputes.
- Confirm the condo corporation is well-managed and compliant with Ontario’s Condominium Act.
9. Resale Value and Market Trends
- Historical price trends in the building and neighborhood.
- Future resale potential and market demand.
- Impact of upcoming developments or infrastructure projects.
10. Condominium Authority of Ontario (CAO) website
All condominiums in Ontario are required to be registered with the CAO.
- You can look up the specific condo on the CAO website to get basic information.
- The site also offers valuable resources for current and future condo owners, including guides on governance, finances, and dispute resolution.
Before committing to a purchase, request the Status Certificate, by-laws and Audited Financial Statements and consult with a lawyer and accountant. A thorough due diligence process will help mitigate risks and ensure a sound investment.
