If you are thinking of buying a condominium in Alberta, understanding condo fees is key to making good decisions. When you write an offer “pending the review of condo documents”, you will receive hundreds of pages of information. Knowing what makes up the condo fees will help you determine if the condo you are considering is a good buy or not.
Lets start from the basics. How are condo fees calculated?:
Condo Fees Explained:
- Every month condo owners pay a fee to the condo corporation to cover their share of the “COMMON EXPENSES”, also known as shared expenses.
- COMMON EXPENSES are expenses for the operation of the condominium complex and include things like maintenance, snow removal, parking lot paving, lawn care, property management, accounting, insurance for the building(s), administrative expenses, maintenance, utility costs, and RESERVE FUND CONTRIBUTION.
- Every 5 years the Condo Board has to order a new RESERVE FUND STUDY. This study is a major inspection of the entire common property. It outlines the life expectancy of the components and comes with RESERVE FUND PLAN recommendations. This tells the condo corporation how much money needs to be in the Reserve Fund bank account to meet the replace/repairs needs identified in the reserve fund study.
- Every year the elected board must create a budget to cover the COMMON EXPENSES and to save an adequate amount based on the RESERVE FUND PLAN.
- Each condo has a total unit factor of 10,000. Each unit is assigned a unit factor which is typically based on the physical size of the unit.
Example: Happyhill condos has an annual budget of $465,000 which includes an annual contribution to the reserve fund of $75,000. You are interested in Unit H123 which has a unit factor of 143. Your portion of the condo fee will be calculated as follows:
Unit factor/10,000 x total budget / 12 months = monthly condo fee
143/10000 x $465,000 / 12 months = $554.13 each month.
Expect regular Increases in Condo Fees
Condo owners should expect a prudent condo board to increase condo fees on a regular basis. The costs of fuel, new carbon taxes, increases in electricity rates, increases in minimum wage, unexpected repairs, frivolous lawsuits, etc. will all have an impact on the condo fees and some can not be fully anticipated and saved up for. It would be wise to mentally budget for a 3.5% increase per year just to keep up with inflation. As well, you should anticipate more when increases such as the new Carbon Levy come into fruition.
A Few Red Flags
Here are a few red flags you can find during your condo document review. These could point to a future increase in condo fees.
Underfunded reserve fund. If the actual amount of money in the reserve fund is far less than the reserve fund plan states should be there, you may have a problem. Investigate this further.
Super low condo fees. Yes, this is a red flag. It could be a sign that there is not enough money in the reserve fund to cover future costs. If it seems too good to be true, it probably is. Check it out.
Under funded budget. If the expenses are way higher than the budget don’t let it go. Ask questions. Sometimes this means an annual budget item is paid in one lump sum sometimes it means there is a cash flow problem. Ask questions.
Unexpected repairs: Reserve fund studies can not anticipate everything. A water main break, sewer line collapsing, roof leaks are common unexpected repairs that can result in either increases in condo fees or special assessments. Read the meeting minutes for signs of impending major unexpected repairs.
Lack of capital repairs or replacements. Even if the condo is on track with the reserve fund contributions, but has not made the repairs you need to ask why. A well run condo will do the repairs and replacements to maintain your investment.
Consider volunteering for the Board
Help ensure the condo you buy is run properly by volunteering for the board of directors. Every 12-15 months your condo corporation will hold an AGM, or Annual General Meeting. Volunteer yourself to be on the board. Interestingly, most boards don’t get enough volunteers. Your willingness to serve your community will be welcome!
Being on the board of directors will give you valuable insight to the day to day operations of the corporation. Additionally, you will be a deciding voice for the financial decisions that will impact you and all the other owners in the complex.
For more information on how condo fees work or anything else condo, email: faulknergroup@shaw.ca!
