If you’ve considered buying a condo, you’ve probably heard about condo fees, which are charged to all unit owners monthly. While these fees can seem overwhelming and may discourage some buyers, they can be beneficial. When understood correctly, condo fees help cover the costs of regular maintenance and contribute to funding significant projects.
To help demystify condo fees, here’s some important information you should know.
Are condo fees mandatory?
In Quebec, condominium fees are mandatory. The law stipulates that all condo owners must contribute to the common expenses associated with the building’s maintenance.
If an owner fails to meet their financial obligations, the syndicate of co-ownership can impose penalties that range from a simple notice to legal action, depending on the severity of the situation. In extreme cases, the board may even have to sell the delinquent owner’s unit to recover the outstanding amount owed.
What is included in the condo fees?
Condo fees are designed to cover the ongoing expenses necessary for the maintenance, operation, and management of the common area in a condominium building. These fees, which are paid monthly by each owner, include:
- Cleaning and maintenance costs: expenses related to common areas such as the entrance halls, hallways, elevators, pools, garden, and green spaces.
- Repair and maintenance costs: funds allocated for repairs and common areas.
- Management fees: this includes salaries for condominium staff, accounting and legal fees.
- Common services: costs for shared utilities like heating, air, conditioning, electricity, and water usage.
- Insurance costs: premiums for insuring the building.
- Security expenses: costs associated with building surveillance, including security guards, surveillance cameras, and alarm systems.
How are condo fees calculated?
Ideally, the condo fees are calculated based on the relative value of the portion of the building owned by each co-owner, as specified in the declaration of co-ownership. This value is typically expressed as a percentage or fraction.
The relative value of each unit is determined by several factors:
- Nature of the unit: the structure, materials used, and features such as balconies.
- Purpose of the unit: whether the unit is residential or commercial.
- Dimensions: the area and volume of the unit.
- Location within the building: factors like position in the building, light exposure, and proximity to elevator or garbage chutes.
For instance, a larger unit on the top floor with a scenic view will incur higher condo fees compared to a smaller ground-floor unit. If a unit represents 10% of the building’s overall value, the owner will typically pay 10% of the common expenses.
As a result, it is normal for co-owners in the same building to pay different amounts in condo fees. Additionally, the range of services offered by the condominium can influence these fees; more amenities usually mean higher costs.
It’s important to note that condo fees are sometimes miscalculated by developers. Therefore, it’s crucial to carefully review the distribution of the fees before finalizing any real estate transaction.
Low co-ownership fees: should you be wary?
After searching for a while, you might come across a condo with significantly lower fees compared to others you’ve seen. This can be a reg flag and is a common mistake for buyers.
Low condo fees are often a tactic used by developers to attract potential buyers. While the initial offer seems appealing, it may not be sustainable over time. Eventually, these fees are likely to increase to maintain the building property.
Low fees can also indicate neglect, suggesting that maintenance is lacking or that important repairs have been postponed. This situation may lead to the risk of facing a substantial special assessment down the line, which can be financially burdensome.
A neglected building tends to lose value, which negatively impacts all condominium owners. So, if the condo fees appear too good to be true, it’s wise to proceed with caution.
The contingency fund: what is it for?
The contingency fund is a sum of money set aside by the condominium from the contributions made by unit owners. Its main purpose is to anticipate and finance necessary repairs or renovations in the common areas of the building.
These accumulated funds belong to the community, and if an owner sells their unit, there is no refund of their share of the contingency fund.
By law, the contingency fund must be at least 5% of the common expenses. However, many condominiums boards simply meet this minimum, which is often inadequate. A more prudent approach would be to allocate a larger budget to the contingency fund. Experts generally recommend that the fund should be between 0.5% and 1% of the building’s reconstruction value.
If you review the building’s documents before purchasing a condo and find that the contingency fund is low, especially if no major renovations have been completed recently, it’s a cause for concern. There’s a strong likelihood that you may be called upon to contribute to repairs or improvements in the future.
The self-insurance fund: what is it?
The self-insurance fund is to allow the syndicate to cover various insurance deductibles in the event of a claim, whether related to the building’s homeowner's insurance or the syndicate’s civil liability insurance.
Funds in this account must be liquid and readily available, allowing the syndicate to act quickly when the need arises.
Can I avoid extra contributions?
Special assessments are large sums that co-owners must pay at once, typically arising when a major issue required urgent repairs, and the contingency funds cannot cover the cost.
While these contributions may deter some potential buyers, there are ways to minimize the likelihood of facing them. Effective management by the syndicate, maintaining an adequate contingency fund, and setting reasonable condo fees can all help reduce the risk of special assessments.
In summary, condo fees are a crucial factor to consider when choosing a condominium. Avoid being tempted by low fees; instead, ensure they are reasonable to prevent unexpected changes in the future. Don’t hesitate to ask the seller questions to be able to make an informed decision.
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