In times of financial uncertainty, one concern for many condominium owners is the ability to keep up with payments, including the common expense fees charged by their condominium corporation. These fees, often referred to as maintenance or condo fees, can add to the stress of managing bills. But what happens if you’re unable to pay them? Let’s explore how these fees work and what the consequences are if you’re struggling to keep up.
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What are Common Expenses?
A Common Expense Fee is the monthly payment each unit owner must contribute to their condominium corporation. These fees cover the costs of maintaining the building, shared spaces, and services within the condo. The amount each owner pays is typically proportional to the size of their unit and is outlined in the condominium’s declaration documents or the status certificate.
The fee can vary from year to year, as it is determined by the condo corporation’s operating budget. While the fee may fluctuate based on projected expenses, every owner is responsible for paying it. The Condominium Act of Ontario governs these payments and their uses.
What do the Fees Cover?
Common Expense Fees cover the maintenance and operation of shared areas and amenities. This can include services such as:
- Garbage collection
- Cleaning and upkeep of common areas
- Security and concierge services
- Utilities for common areas like lighting and heating
- Maintenance of amenities such as pools, gyms, and gardens
In some condominium buildings, these fees also cover utilities for individual units, such as water or electricity. Each condo is different, so it’s important to review the specific breakdown of what your fees cover in your building’s financial documents.
Reserve Fund
A portion of the common expense fees is set aside into a special account known as the Reserve Fund. This fund is essential for covering large repairs or replacements in the future, such as fixing the roof, updating elevators, or repaving parking lots. The Condominium Act requires that condo corporations conduct a reserve fund study every three years to ensure the fund has enough money to cover major projects.
By law, the Reserve Fund can only be used for these long-term repair projects and cannot be spent on day-to-day operational expenses. This ensures that when large repairs are needed, the corporation has the money to cover them without placing a significant financial burden on unit owners all at once.
According to the condominium act [93 (2)], the reserve fund may only be used for repairs and top-ups, and cannot be used to cover operating expenses.
Special Assessment
If a condominium corporation finds that the reserve fund is insufficient to cover necessary repairs, or if unexpected issues arise, the board may levy a “special assessment.” A special assessment is an additional one-time fee that unit owners must pay to cover these costs.
While the board can decide to impose a special assessment, owners typically have the right to question or challenge the decision. If a large number of owners object to the assessment, a vote may be held to determine whether the additional fee should proceed.
Requirement to Pay
The Condominium Act states [84 (1)] that all owners must contribute to the payment of common expenses, even if the owners of units have waived rights or been barred from accessing or using those Common Elements [84 (3)].
If you fail to pay your share of the common expenses, an automatic, unregistered lien is placed against your unit. A lien is a note indicating that the unit is in debt to the corporation, and reserving the right for payment upon sale of the property, forcefully or otherwise. This lien expires 3 months after the default unless a Certificate of Lien is registered with the appropriate Ministry in Ontario. Written notice must be given to the Unit Owners 10 days prior to registration of the Lien.
Condominium Liens take priority over any other lien registered (except those prescribed or claimed by the crown, such as tax liens). The unit owner is liable for the balance of the lien, and may be responsible for covering the cost of legal fees associated with the registration and discharge of the lien (which could be $1,500 or more).
Mortgage Implications
It’s important to note that in Ontario, failing to pay common expenses can also lead to mortgage default. If you have a mortgage on your condo, the lender may consider unpaid common expenses as a breach of your loan agreement, potentially triggering legal action by the lender. In some cases, tenants may be required to pay rent directly to the condominium corporation to settle the outstanding common expenses, which could further complicate the situation for both the owner and any tenants involved.
What Can You Do If You’re Struggling to Pay?
If you find yourself unable to meet your common expense obligations, it’s important to take action quickly. Here are a few strategies that could help you avoid further financial complications:
Stay Informed as a Tenant: If you’re a tenant in a condo, check for any notices from the condominium corporation regarding unpaid fees, and talk to your landlord. Addressing these issues early can prevent the unit from going into lien, which can save you from paying legal fees later.
Speak with Your Condominium Board or Management Company: Be proactive and let them know about your financial situation before it gets worse. Many boards may be willing to provide extra time for payment or waive late fees if they’re aware of the challenges you’re facing.
Explore Personal Credit Options: If possible, consider taking out a short-term loan to cover your common expenses. The cost of a loan may be lower than the legal fees associated with a lien.
Seek Mortgage Relief: Some banks offer temporary relief for mortgage payments. Keeping up with your mortgage and common expenses can help you avoid larger financial issues down the road.
Conclusion
Common expenses are a crucial part of maintaining a condominium and its shared spaces. While financial challenges can make it difficult to keep up with payments, addressing these issues early and exploring your options can help you avoid significant consequences like liens or legal fees.
Alloway Property Group is a Full Service Real Estate Brokerage founded and managed by practicing lawyers. If you have a question about how the COVID-19 Pandemic affects your real estate strategy, we invite you to Contact Us.
