When signing an Agreement of Purchase and Sale for a condominium, some buyers are surprised to see their agent has inserted an additional condition beyond the usual financing and inspection provisions. This condition, involving a review of a status certificate and associated condominium documents, is extremely important for a variety of reasons.
First, the status certificate documents will provide the buyer with financial information on the condominium. This often includes a budget, financial statements, and a reserve fund study (which shows the long-term plan for repairing and replacing certain items, such as the roof of the building or the asphalt in the parking garage). Reviewing this information can provide insight on the financial health of the condominium, which is crucial since increases in fees or special assessments (which is when the condominium does not have enough funds to cover its expenses and seeks an additional payment from its owners beyond the monthly condominium fees) can cause a burden on the buyer if they decide to become an owner.
Therefore, if there are red flags in these documents and they are identified during the conditional period, the buyer still has an opportunity to back out of the purchase or at least negotiate with the seller (e.g. a reduction in price) to hopefully mitigate some of the issues discovered in the status certificate package.
Second, there will also be documents outlining the rules of the condominium (i.e. the declaration, by-laws, regulations, rules, etc.). Examining these items during the conditional period is prudent since there could be restrictions on the use of the unit, such as the building not allowing smoking or prohibiting pets. Therefore, if there were rules that the buyer found problematic, they would then be aware of them during the conditional period and could decide whether to fulfill their status condition or not.
Lastly, if you are obtaining financing, your lender will insist that they receive a “clean” status certificate before advancing your funds. So, even if the buyer is comfortable with the various problems that the condominium is experiencing, their lender may not be.
As you can see, reviewing the status certificate documents while your purchase is still conditional is very important. Our firm reviews status certificate documents frequently so feel free to contact us and we would be happy to assist with your next condominium purchase.