As Property Managers, we are often asked questions related to an owner’s monthly maintenance fees. These fees are sometimes referred to as common expenses or common element fees. The types of questions we most often see are; what is included in my maintenance fee; where do I pay my fees; what options are available for payment of my fees; and are my maintenance fees going up this year?
Find out why owners are required to pay maintenance fees, how they are calculated, how to pay them and repercussions when fees aren’t paid. As an added bonus, we will try and answer why fees go up and sometimes down.
What is a Condominium Corporation?
A Condominium Corporation in its most basic form is simply a form of ownership. It is different from the typical residential detached home where a homeowner owns all the land and the buildings, which together are known as the property. In the case of a Condominium Corporation, an owner owns a unit, and the unit owners collectively own the property.
Although there is more than one type of condominium corporation, such as a common elements, vacant land and phased corporations, this article focuses on the most common type, which is a standard condominium corporation. In a standard corporation, there are only units and common elements. The saying goes, if it isn’t a unit, then it is a common element. Each unit is independently owned and the remaining property are the common elements. A unit is essentially a space defined by measurement. The units are defined by the boundaries outlined in the Declaration and Description of the Corporation. These documents are registered at the local land registry office. It is this space that a unit owner owns and is free to sell to a purchaser, subject to any restrictions in the Declaration, Bylaws or Rules. The most common types of units we find in a residential condominium, high-rise or townhouse, are residential units, parking units and locker units.
How do we define common elements?
Now that we know what units are, how do we define common elements? Fortunately, the Condominium Act of Ontario does this for us. The definition of common elements under the Act “means all the property except the units”.
How are maintenance fees calculated?
The Corporation’s Declaration contains a schedule, which outlines the proportionate share of the common expenses that are attributable to each unit. Maintenance fees are calculated for each individual unit using these proportions. This schedule is prepared before a Corporation is created and before units are sold. Although the Condominium Act is silent on how the proportions are to be calculated, the most common method is to base the proportions on the square footage of each unit against the total square footage combined for all the units. An allowance is also made for calculating the proportionate share for parking, locker and any other units as defined in the Declaration.
It is the responsibility of the Board of Directors of the Corporation to prepare the annual budget. Although this task is typically delegated to the Management Company, only the Board has the voting power to approve the budget.
What is included in the maintenance fees?
This brings us to the question of what is included in the maintenance fees. Common expenses are defined in the Act as “meaning the expenses related to the performance of the objects and duties of a corporation and all expenses, specified as common expenses in the Act or in a Declaration”. In other words, the maintenance fees are collected so that the Corporation can operate and pay its bills for the common expenses of the Corporation. Once again we typically find a schedule in the Declaration that lists the common expenses. The schedule usually contains the wording, “without limiting the generality of the foregoing, the common expenses include the following”, which means that the list is not all-inclusive. Each Corporation is unique and therefore the list of common expenses will vary from one to another. Examples of some of the more typical common expenses include; insurance; utilities; contracts such as landscaping and snow removal; elevator maintenance; HVAC; cleaning and management; professional fees for the auditor and solicitor; general repairs and maintenance; plumbing; electrical; and of course the reserve fund contribution required by each Corporation to be set aside for major repairs and replacements of the common elements.
The importance of paying your maintenance fees on time
Sections 84 – 88 of the Condominium Act deal with common expenses, including the requirements for each owner to contribute based on the proportions found in the Declaration and the rights of the Corporation to collect in case an owner defaults in their obligation. Not all provinces afford the same high level of protection to the Corporation as in Ontario. In this province, if an owner fails to make their monthly payment, the Corporation has an automatic lien against the unit. This lien expires within three months unless a certificate of lien is registered against the unit. If a lien is registered, this is where the significant costs to the unit owner start to accumulate since the lien covers the existing outstanding arrears secured by the lien, future defaults until the lien is discharged plus all interest owing, and reasonable legal costs and expenses incurred by the Corporation while collecting the lien. Perhaps most importantly, once the lien is registered it gives priority over every other encumbrancer, including the mortgagees, except for a few select parties such as the Crown. This means that if the unit is sold under power of sale for example, the Corporation will be paid ahead of the mortgagees, virtually guaranteeing payment to the Corporation.
The easiest way to avoid the whole lien scenario and the extra costs involved is simply to ensure your payments are made on the first day of each month. Although historically, this was done through payments by cheque provided to the Management Office, most payments these days are made by pre-authorized payment. This is a very simple and cost effective method of guaranteeing your account doesn’t fall into arrears. Most Management Companies offer this service to its clients and make it very easy for an owner to enroll. Simply contact your company and they will send you the forms to sign, and request that you provide a void cheque so they have your bank account, branch and institution numbers. Other methods of payment accepted by most Corporations is payment made by cheque(s), hopefully by the owner sending 12 post-dated each fiscal year, or by money order or some other form of guaranteed funds.
It is important to note that monthly reminder letters for maintenance fee arrears, are only sent as a courtesy. A Corporation is only required to send out the regulated Notice of Lien form 10 days before a lien is registered against a unit. A Corporation is no more responsible to ensure an owner pays their fees, than a credit card company would be to ensure their customer pays their monthly statement.
So why do maintenance fees go up? Well despite Sir Isaac Newton’s assertion that what goes up, must come down, common expenses are not always in the control of the Corporation. Utility prices are set by the providers and the Ontario Energy Board, insurance premiums are subject to market forces, service contracts increase with inflation and future major repairs cost more than they do today. It is the job of both Management and the Board to use their best efforts to manage the expenses efficiently and effectively. Maintenance fees can decrease, although not often. Hopefully with the proposed cut to electricity rates, this may be one year where we may see it happen.