When purchasing a unit in a building, you will share certain financial and other responsibilities with other unit owners regarding the property’s common elements. As such, it is important to inquire about how the condominium is being managed. To this effect, the first thing you should do as a potential buyer is to obtain an up-to-date copy of the status certificate.
As per s.76(6) of the Condominium Act, “the status certificate binds the corporation, as of the date it is given […], with respect to the information that it contains […], as against a purchaser or mortgagee of a unit who relies on the certificate.” It outlines important information on the subject unit and the condominium corporation such as its financial health, upcoming major repairs, or ongoing/pending lawsuits. A status certificate and its attachments are typically lengthy. Having a lawyer review the documents is essential as they will identify any potential red flags and will help you understand what to expect once you take ownership.
A status certificate will describe the rules and the restrictions in the building
As a unit owner, you want to make sure you know the rules and restrictions implemented by the condominium corporation. This will give you an idea on what to expect when living in the building, to see if it meets your needs. For instance, there may be some restrictions on smoking or the number of pets you are allowed to have. Copies of these rules will accompany the Status Certificate.
A status certificate will clearly outline what you are actually buying
The legal description of the units you purchase will be confirmed by the status certificate. In some cases, ownership of the parking or the locker units will not be transferred on closing, as they are categorized as “exclusive-use”. They will remain part of the common elements, thus still belong to the condominium corporation. However, the owner whose condo unit is legally attached to these amenities will have their sole use. As such, it is important to correctly read the legal description, so you know exactly what you are getting. The Declaration and the By-Laws attached to the status certificate, will list all “exclusive-use” amenities, if any.
A status certificate will disclose the financial health of the corporation
A budget is approved by the board of directors every year in order to maintain the condominium and to pay its operational expenses. Each unit owner is responsible to pay monthly for a portion of the common expense and that amount will be indicated in the Status Certificate. It will also reveal whether the current unit owner is in arrears. If so, your lawyer will ensure the situation is remedied before closing because the condominium corporation may register a lien against the subject unit if the default persists.
Reserve fund and financial statements
Under s.93 of the Condominium Act, the reserve fund is a pool of money used “solely for the purpose of major repair and replacement of the common elements and assets of the corporation”. Every three years, the board of directors must obtain a reserve fund study which involves a group of experts examining the condominium property and determining how much the cost of repairs and replacements will be in the future, and whether or not there will be sufficient funds to pay for them. If there will not be sufficient funds, condo fees may be increased to address this, as a portion of the monthly common expenses is transferred into this reserve fund account.
On occasion, if there have been unexpected major repairs or there have been issues with the management of the reserve fund, a special assessment could be levied by the condominium corporation to address a shortfall in funds to pay for these major expenses. A special assessment is an extra payment made by the unit owners in addition to condo fees, and it can often be a significant amount of money.
The financial statements are the reports indicating the fiscal condition of the condominium corporation at a given time. It comes with a balance sheet which outlines the debts of the corporation, its assets and equity. Thus, a review of the reserve fund study and the financial statements will give you a good indication of the current state of the building as well as the financial health of the corporation.
A status certificate will inform of any ongoing or pending lawsuits
As a prospective buyer, you will want to know if the condominium corporation is a party to a lawsuit. This is because unit owners could be liable to pay a proportionate share of any judgment or settlement against the corporation if there are insufficient funds to pay for this in the reserve fund. This could also result in special assessments being levied or higher common expenses.
The status certificate and its attachments are prepared by the board of directors for a fee. Because of its related costs, it is preferable to ask the seller to provide it to you. Otherwise, you have the option to order it online, or request it directly from the board. If you cannot obtain these documents prior to submitting an offer, it is highly recommended to make the transaction conditional upon receipt and review of the status certificate. This will give you time to get the appropriate legal advice.
To sum up, the status certificate is an important document for you to understand. It is in your best interest to ask a lawyer to review it at the very beginning of the purchase process. This will prevent you from dealing with unpleasant surprises.