On May 5, 2001 the newly revised Condominium
Act and regulations became effective. Some of the changes that realtors,
purchasers and sellers should be aware of are as follows:
A) RESALE REGISTERED CONDOMINIUMS
1. Status Certificate
- Previously it was called an estoppel certificate. The new STATUS
CERTIFICATE can be ordered by anyone (realtors, appraisers, a person
walking by the building) so long as a written request is made together
with the fee (maximum of $100.00, including taxes). From the time
the request is made in writing and the fee is paid, management has
up to 10 days to make the STATUS CERTIFICATE available with all the
usual accompanying documents (including declaration, by-laws, budget,
financial statements, rules, insurance certificate). One of the new
statements in the Status Certificate obligates management to report
the number of units in the complex that management is aware are leased
units (as opposed to owner occupied units) which might be a factor
for consideration for some buyers.
For a buyer to rely on the contents of the
STATUS CERTIFICATE, it is no longer a requirement that the certificate
be ordered by (or in the name of) the purchaser. Any Purchaser or
mortgage lender is entitled to rely on whatever the STATUS CERTIFICATE
discloses as of the date the Certificate was issued.
The STATUS CERTIFICATE must now disclose
much more information about reserve fund, existing circumstances that
might require a future increase in common expenses (or special assessment),
possible litigation, etc. The Certificate must list the types of agreements
(including management agreement) to which the condominium corporation
is a party and a statement that the person requesting a status certificate
has the right to obtain copies of such agreements upon paying an additional
fee for labour and copying charges.
RECOMMENDATION: It is highly recommended
that when vendors list a condo for sale, the vendor should order a
status certificate since almost any incoming offer will be conditional
on a status certificate review. Vendors and listing agents should
make themselves aware of what prospective buyers will see in the status
certificate and seek any needed clarification about any issues with
the property manager before (if possible) receiving an offer. Knowing,
and understanding the product being sold is important! Also, by ordering
the status certificate at the time of listing, a vendor can save 10 days upon receiving an offer (typically being conditional on seller providing a status certificate within 10 days) so that the sale agreement can merely be conditional on buyer’s review of seller’s existing status package for 48 hours after acceptance of offer.
The buyer's condition clause should
be one that requires the vendor to pay for the status certificate
since the vendor can more quickly order and obtain the status certificate
due to the vendor's easy access to management (although anyone can
order it); also, the purchaser's lawyer might need to order a new
status certificate as an update before closing (if the closing date
is more than 60 days into the future) which means that the vendor
pays for the certificate during the condition period and the purchaser
pays for any update needed before closing by the purchaser's lawyer
(depending on how far into the future the closing date is).
Example:
(a) An offer to purchase presented by
a buyer should include the new revised condition: Vendor agrees
to provide at Vendor's expense, within ten days of acceptance
of this Offer, a current status certificate and usual accompanying
documentation. Purchaser shall have 2 banking days from receipt
to review and to be satisfied regarding contents of such documentation;
failing which this Offer shall become null and void and the deposit
shall be returned to the Purchaser without interest or deduction.
This condition is included for the benefit of the Purchaser and
may be waived in writing at Purchaser's sole option within such
condition period.
(b) Vendor (on sign back to purchaser)
has two options if status certificate was ordered at the time
of listing by vendor:
(i) Vendor's agent can hand over the
existing status certificate package to purchaser's agent with
the status certificate clause having been deleted on sign back
by vendor. Purchaser's agent must undertake, on behalf of the
purchaser, to return package if purchaser does not proceed with
purchase. Sign back by vendor is irrevocable for 48 hours for
purchaser to review existing status certificate package since
vendor refused to permit a status certificate condition. Since
there is no conditional sale at this time, a vendor avoids having
his property tied up for 10 days (or more) on a status certificate
condition and avoids reporting the property having been sold
conditionally with a stigma attaching if a conditional sale
should abort due to purchaser's lack of satisfaction with the
status certificate.
(ii) Vendor can change (on sign back)
the words in the status certificate condition from "...current
status certificate..." to "...status certificate dated 20 "
(whatever the date was on the vendor's existing status certificate).
If the purchaser accepts the existing status certificate for
review, the 10 day window to get a certificate can be avoided.
If the purchaser is not happy with the past date on the existing
vendor's status certificate, purchaser will then be forced to
obtain a current status certificate at purchaser's expense by
changing the wording in the status condition clause (upon sign
back by vendor) to "Purchaser agrees to obtain at purchaser's
expense... a current status certificate...". (Time can be saved
in sign-backs by verbally confirming whether or not purchaser
will accept existing certificate before vendor signs back.)
2. Reserve Fund Study
- Previously there was no requirement in the old Act for reserve fund
studies which were generated by management companies who recommended
them be done, as prudent managers. The main requirement in the old
act to fund reserves was that a minimum of 10% of monthly common expenses
paid must be deposited into a reserve account for future major capital
expenditures (eventual replacement of roof, windows, major repair
items, etc.).
Under the new Condominium Act, existing
registered condominium corporations must prepare a reserve fund study
within three years of May 5, 2001. Until such a study is done, the
condo corporation must still deposit at least 10% of the monthly common
expenses into the reserve fund. The study evaluates the remaining
life expectancy of each building component over a projected 30 year
period, considers the projected replacement cost of each building
component and a financial plan to fund such replacement through the
projected reserve fund with recommendations for what amount the monthly
deposit should be into reserve (whether it be 10%, more, or less,
depending on the current balance in the reserve fund, the existing
state of repair of the project, etc.). Reserve fund studies must be
updated in intervals of not more than 3 years from the last study.
The Condominium Board of Directors
must propose a plan for funding the reserve fund within 120 days of
receiving a reserve fund study. Notice of the funding plan must be
sent to unit owners within 15 days of the proposal by the Board of
Directors who have 30 days from sending the notice to begin its implementation.
WITHIN 10 years of the first reserve fund study done between May 5,
2001 and May 5, 2004, the funding plan must achieve an adequate level
of the reserve fund to satisfy the requirements proposed by the reserve
fund study. Once a level of adequacy is achieved for the reserve fund,
future reserve fund study updates must ensure that any inadequacy
of the reserve fund is remedied within the next fiscal year following
the fiscal year in which the study, or update, was completed.
B) NEWLY
CONSTRUCTED CONDOMINIUMS
1. Rescission ("cooling-off")
Period - The new condominium act clearly states that the beginning
of the 10 days (10 calendar days including every day) in which a purchaser
can terminate a purchase from a builder (in writing) begins from the
later of:
(a) the date on which the purchaser
received the disclosure package, or
(b) the date on which the purchaser
received a copy of the purchase agreement signed by both the builder
and the purchaser.
The purchaser's written notice
to cancel the purchase must be delivered to the builder's representative
within the 10 day period. All deposits must promptly be refunded
to the purchaser (together with interest for any proposed condominiums
where no unit had been sold prior to May 5, 2001).
NOTE:
(i) A purchaser delivering such
a notice should keep a copy with a signed receipt for delivery
to the builder's representative.
(ii) A second 10 day "cooling-off"
period arises in a situation where there is a material change
to the disclosure package and the builder (who is required to
do so) delivers a revised disclosure package to the purchaser
prior to closing.
2. Interest Payable
to a Purchaser - In the old Condominium Act, unless a builder
agreed in writing to pay interest as soon as deposits from purchasers
were received, the Act only required interest to be paid between the
occupancy date and the final closing date. NOW, under the new Act,
interest (based on a regulated formula) must be paid by builders to
purchasers from the time deposits have been received up until occupancy.
This new requirement will NOT apply if the condo project had at least
one accepted offer to purchase a unit prior to May 5, 2001.
3. Interest
Payable to Builder During Occupancy - Before the new Act came
into effect on May 5, 2001, it was a matter of contract as to what
was agreed between purchaser and builder as to the formula for interest
rate calculation that would apply to the unpaid balance of purchase
price during the occupancy period as part of the monthly occupancy
costs.
NOW under the new Act (unless
the builder had already accepted an offer to purchase at least one
unit before May 5, 2001), interest payable on the "phantom Mortgage"
to the builder during occupancy will be payable at the rate which
the BANK OF CANADA has reported as the chartered bank administered
rate for a conventional one year mortgage as of the first of the month
in which the purchaser is required to assume occupancy.
NOTE: Now under the new Act,
a purchaser (who has the available funds) can avoid paying interest
during occupancy if a written notice is given to the builder during
the 10 day "cooling-off period" that the cash balance of the purchase
price will be paid upon the occupancy date. (A buyer who needs a mortgage
cannot do this since a mortgage cannot be registered until the condominium
corporation is registered).
C) NEW
TYPES OF CONDO PROJECTS
The new Condominium Act creates
new concepts for future projects:
(i) COMMON ELEMENT
CONDO CORPORATIONS
No residential units are created;
the developer can sell shares (for example) in a recreational facility
to owners of properties within the same land registry division in
which the condominium is registered. The most common example, currently
is a freehold townhouse project with the internal roadways and walkways
(including their maintenance and outdoor lighting) as well as any
recreational facilities being condominiumized.
(ii) PHASED CONDO
CORPORATIONS
Instead of a different condo corporation
(for example) being created in a three tower (3 phased) condo project
(for each condo tower as it is being built), the developer can establish
a condo corporation which has the ability to add each phase to the
original registered condominium corporation as each phase is completed.
The benefits will be to avoid a lot of unnecessary expense flowing
from creating different corporations for each phase of the same
project with different management companies, reciprocal agreements,
easements, etc. In order to take advantage of this concept, all
phases must be completed within a 10 year period.
(iii) VACANT LAND
CONDO CORPORATIONS
The units will be vacant lots
although common elements can be (for example) a clubhouse, golf
course or recreational facilities. The builder can establish restrictions
regulating the type of housing to be built on the lots.
(iv) LEASEHOLD CONDO
CORPORATIONS
An institution (for example) with
excess land can establish a lease term of between 40 and 99 years
(must be the same term for all units being built in the project)
so that unit owners will own a leasehold right for a certain period
with such leasehold right being capable of mortgaging, selling,
etc. At least five years before the lease term expires, there must
be a written notice by the lessor regarding a lease renewal; a lease
renewal must be for a minimum of ten years.
D) OTHER CHANGES
IN THE NEW CONDOMINIUM ACT
The changes referred to in the above
sections A, B and C are some of the main highlights that affect purchasers,
vendors and realtors. There are many other changes that affect developers,
property managers, boards of directors, unit owners, etc. For all
changes, one should consider a more detailed review of BILL 38, being
the newly revised Condominium Act of Ontario which became effective
May 5, 2001 and its regulations (primarily ONTARIO REGULATION 48/01).
See the entire new Condo Act accessible via the Web at http://www.ccr.gov.on.ca
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