Why Are Condo Fees So High?
Sunday Dec 01st, 2019
Why Are Condo Fee So High?
Condominiums have been the hottest segment of the market around GTA until Covid hit, it was partly because of the lack of affordability for freehold housing, as well as changing demographics, lack of available land in Downtown Toronto, life-style choices, just to name few reasons. In this article we will look at why are condo fees so high.
The amount to be paid for monthly condo fees can range anywhere from $200 for a studio unit in the brand new condominium building to many thousands of dollars for a large penthouse in older building with many amenities, in most cases the fees will be anywhere between $300 to $1,000 per month, sometimes they seem reasonable, in other cases quite excessive, they only go up, and we often ask ourselves why are the fees to high?
To understand what makes up the condo fees we should discuss three main categories:
- Condominium corporation.
- Current expenses.
- Reserve fund.
In order to protect the consumers the government has created the Condominium Act, imagine a 500 unit building where each unit owner does whatever he or she wants, owner of the unit on the 15th floor wants to fix the elevator that has not been working for a month but the unit owner from the second floor doesn’t want to pay for the elevator because he or she doesn’t need it, pure chaos. Yes, we need the rules and regulations, we need someone to manage it, make sure funds are spent appropriately and everything is done in a lawful matter. The not for profit corporation without share capital is created (mandatory) under the laws of Ontario, this is vital in order to keep things running smooth, and it costs money.
Below you will see listed typical expenses you can find on the financial statements of the condominium corporation:
- Common area housekeeping
- Building maintenance and repairs
- Office expenses
- Meetings and social
- Waste removal
- Fire protection
As you can see the list of expenses could be quite long, no work will be performed by the unit owner. In a house you can cut your own grass, clean your stairs and hallways, you can do some of your own repairs. In a condo you will be paying for everything, and all of those functions are performed by companies who have employees, have to pay payroll taxes, income taxes etc, and on top of that make a profit.
Secondly when owning a condo you have to hire many people you otherwise wouldn’t when owning a house, you are paying for management company, accountants to prepare audited financial statements every year, engineers to asses the property, lawyer, security, superintendent and on and on and on.
If you own your house it is up to you how well you will upkeep it, you have a choice to put aside repairs for later on when you have more money, and if the leaking roof doesn’t bother you so be it, your problem. Thankfully in a condo there are certain regulations and the property has to be maintained to certain standards which not only helps maintain the value of the units, but also ensures safety of all occupants and visitors.
One of the main aspects of the Condominium Act is to ensure the unit owners will not run into financial problems and the corporation has enough money for major repairs and replacements for years to come. Imagine it is time to replace the windows and the bank account is empty, and all of a sudden the building needs to come up with $2,000,000 to replace all windows? This is why the reserve fund is created, with each monthly condo fee contribution part of it is allocated to the reserve fund to facilitate current and future major repairs. The Act stipulates certain minimums for the reserve fund, the studies have to be performed every three years to ensure the needs are being met. As with any man-made products, the building and all of it’s components deteriorate, windows will need to be replaced every 20 years, elevators every 15, roof, hallways, swimming pool and so on. In all cases these repairs and replacements will be done by well established companies and not the cheapest Joe Blow found on Kijiji. If the total monthly condo fee for your unit is $400, you can be assured that part of it, often about 25% will be allocated towards the reserve fund, and will be used in the future for major repairs.
As you can see maintaining the condominiums is a big and complex operation requiring input and skills of many professionals to make sure everything runs smoothly and the buildings are maintained to certain standards, and make for enjoyable living environment.
If you have any questions regarding the topic please feel free to drop us a line.