Read the fine print

Study the documents
Read the status certificate, the audited financial statements for the last fiscal year, the current budget, the declaration, the by-laws and the condominium’s rules. Take notes so you can ask the property manager or your lawyer if you have any concerns.

Your offer to purchase should state that the offer is conditional on your lawyer finding nothing amiss with the documentation.

I would ask to examine a copy of these documents before you sign an offer to purchase. The $100 fee should be borne by the seller.

Some property managers do not give all the required documents when they give the seller the status certificate. If some or most of the information is missing, or is out of date, and you have to telephone the manager to get the missing documents, then something may be wrong.

The status certificate
Budget
1.
 The certificate should say that the corporation is meeting its obligations as and when they become due and is not considering any increase in the common expenses until the next fiscal period.
2.
 It should also say that the board has not levied any assessments against the unit to increase the contribution to the reserve fund.
3.
 If there is or was a special assessment in place, think twice before buying. One special assessment often means that there may be more on the way.

Reserve fund
1.
 The amount shown in the reserve fund should have a current date. If it shows a date that is more than three months old, something is wrong.
2.
 The Reserve Fund Study will verify that there are sufficient reserves to meet the corporation’s requirements. It should be a current study, less than three years old.
3.
 The certificate should say if the board is planning to increase the reserve fund in the current fiscal year.
4.
 If the corporation has taken out a loan, ask why. The property manager should be willing to answer any of your questions.

Very important
Read the complete Reserve Fund section of the Status certificate.

Paragraph 13 on one status certificate I read stated: "The Corporation's Audited reserve fund amounts was $480,903.00 as of December 31, 2013. The Corporation's Un-audited reserve fund amounts was $498,000.00 as of December 31, 2014."

Paragraph 15 stated: "The balance of the reserve fund at the beginning of the fiscal year is $480,903.00. However this amount in the Reserve Fund was not supported by Cash/Liquid Assets and may be inaccurate."

Wow! This status certificate was issued in June 2015 by Greater Toronto Property Management, the agent for the condo corporation, and in Paragraph 15, besides writing the wrong amount for the start of this current fiscal year, it has a disclaimer that the stated figure is probably fictitious. (Which it proved to be.)

A buyer told me that she read as far as Paragraph 13 and when she saw that there was $480,000 in the Reserves, that was good enough so didn't bother to read any further.

Legal proceedings
You and your lawyer should read this section very carefully.

 Leasing of units
This should tell you what percentage of the units are owner-occupied and how many are being rented out. (Be aware that the property manager in some buildings may not know, care or may be fudging this number.)

Other
It is the purchaser’s responsibility to determine if the seller has carried out any structural changes to the unit or modified any exclusive-use common elements. If you have any doubts about this, you should request the corporation to conduct an inspection prior to purchase.

Note: The status certificate is a legal document. If there is sufficient misleading information in that certificate, and you purchase the unit based on wrong information, you may be able to sue the condominium corporation for damages.

Also if the status certificate states that there are no planned increases in the common element fees during the present fiscal year or that there are no planned special assessments or loans and that is not true, you may be exempt from paying these extra costs.

The audited financial statements
1.
 The auditor should have signed a clean report. If the front sheet has more than three or four paragraphs, something may not be right. Read everything extra careful.
2.
 If you cannot read the financial statements, then find someone who can. Pay an accountant if necessary. It should take about an hour.
3.
 The financial report and the budget should be current. If either of them is missing or are dated, something may be wrong.
4.
 The auditor should note if the reserve fund collections are adequate or not and if separate bank accounts are maintained, as required by law.
5.
 If the reports don’t say, ask if the reserve funds are invested. The earned interest should be stated in both reports.
6.
 Assets: Look for Common Element Fees Receivable. This tells you the amount of uncollected condo fees at the end of the last fiscal year. I have seen amounts as high as $250,000. There should be a Note to refer to. Read all the notes that the auditor puts in the statements.
7.
 Interfund Balance: This term is a real Red Flag. This may mean that the board has been dipping into the reserve fund to pay operating costs.
8.
 Liabilities: Look at these figures. They will tell you if there is an annual deficit.
9.
 Net Assets. A negative in the operating fund is not good.
(Any number in brackets is a negative number.)
10.
 Operating Balance, End of Year. I have seen condos run a deficit for three straight years. Don't buy in a condo that runs annual deficits.
11.
 Reserve Operations & Fund Balance: Match these numbers up against the Reserve Fund Study.
12.
 Cash flows: Look for any wild swings between the years. Also see if the interest earned on reserve fund investments is going up or down. Check these numbers against the reserve fund study.
13.
 Look in the Expenses sheet in the financial statements to see how much was spent on Pest Control. Anywhere from $1,200 to $2,000 sounds about right for a 100-150 unit condo tower. If the costs are $12,000 to $14,000, then the building may have bedbugs.
14.
 Notes:
Read the notes carefully. This is where any bad news may be hiding.

Budget
Compare the current budget to the old ones printed in the financial statements. Look for any major differences. If the board cannot meet their operating budget, then something is wrong.

Reserve Fund Study
1.
 Usually there is a two-page summary enclosed with the status certificate. That is nice but you want to be able to examine the full report. The property manager can and should arrange for you to inspect it in the manager's office.

Too often money was spent but the board used the money to pretty up the lobby instead of repairing the leaky roof. That is why you need to read the full Reserve Fund Study.
2.
 Ask if all the suggested maintenance and repairs recommended by the engineers have been completed. If not, why not?
3.
 If the Reserve Fund Study is more than three years old, do not buy.

The Declaration
1.
 The declaration will tell you what amenities the corporation offers. When you inspect the property, if you see that any of the listed amenities are closed, find out why and for how long have they been closed.
2.
 It will state how many parking spots and visitor parking spots are on the property.
3.
 It will list the use of the common elements.
4.
 It will describe the residential and commercial units and what changes are permitted to them.
5.
 Look for a clause saying that the residential units can only be used for single-family residences. This is the preferred wording.

In newer condos, the declaration may say that the units may be used for any residential use that the municipal by-laws allow. This could allow the developer or investors to rent the units short-term as if they were hotel rooms and the owners may be able to turn their units into rooming or boarding houses. Some say that short-term rentals must be for a minimum 30 days and some are silent on the length of stay.

Some new condos have declarations that allow short-term rentals for any period of time. This means that the condo cannot ban owners from renting their units by the day or weekend.
6.
 It will describe the use of lockers and bicycle storage areas.
7.
 The declaration describes the corporation’s insurance obligations.
8.
 It will describe the duties of the corporation including the collection of the monthly common expense fees and any special assessments.
9.
 It will describe the corporation’s rights to enter the private units.
10.
 The declaration may allow, restrict or prohibit pets and the use of exterior aerials, antennas or satellite dishes.
11.
 The flooring in the units may need approved under-padding. One renovated condo in Toronto featured 3/4 inch hardwood floors. However, there was no under-padding installed in any of the units so every time someone played their stereo, moved a dining room chair or walked wearing hard shoes, they disturbed the people living below them.
12.
 In older condos see if washers/dryers and dish washers are allowed.

By-laws
The corporation’s by-laws are a private contract among the owners specifying the manner in which they wish to coexist.

The board is entitled to make such a contract, particularly when the by-laws are made in good faith for a reasonable purpose, which should be the owners enjoyment of their property and their quality of life.
1.
 States what corporation records will be kept and for how long.
2.
 States the duties of the corporation including repairing an owner’s unit if the owner will not do it.
3.
 Describes the calling and holding of meetings.
4.
 Describes the enforcement of the Act, the declaration, the by-laws and the rules.
5.
 It lists the powers of the corporation. Read this carefully.
Note:
If there is a by-law that states that the corporation has the power to borrow such amounts as the board determines are necessary or desirable in order to protect, maintain, preserve or ensure the due and continued operation of the property …without the need to adopt a further by-law, do not buy. This my mean that the majority of board members may have the power to put the corporation into crushing debt without having to call an owner's meeting to pass a by-law approving any such loans.
6.
 Gives the board the right to hire contractors and suppliers and set the terms of the contracts.
7.
 Lists the rules governing meetings, notices and reports.
8.
 Describes the use of proxies for owners who will not be attending owner meetings.
9.
 Lists what should be in the meeting minutes.
10.
 States the duties, the number, the responsibilities and the election of directors.
11.
 Check the Standard Unit and Deductible by-laws. They state what repairs the corporation and the unit owner is responsible to pay for if there is flooding or fire.
12.
 Look for any by-laws that restricts democracy within the corporation  by limiting the owners' rights to communicate with the other owners or limit their rights to run for a director position.
13.
 The by-laws must be reasonable.

Policies
  1.  Some condo corporations have "policies".
  2.  You need to read a copy of all the corporation’s policies.
  3.   See if they are reasonable and they are something you can live with.

Rules and regulations
1.
 Rules regulate behaviours and must be reasonable. For example, a rule cannot ban pets but they can restrict the number of pets in a unit, require owners to use leashes and limit a dog's weight.
2.
 The rules are binding on all owners and their occupants, guests, visitors and agents.
3.
 The rules can be changed whenever required. The owners will be notified in writing whenever the board approves a new rule or changes to existing rules.
4.
 The owners have the right to quiet enjoyment of their units and the common elements.
5.
 There are rules about security of the building and the parking garage.
6.
 There are safety rules about the use of barbecues, smoking and other items.
7.
 You may not be able to store your bicycle on the balcony.
8.
 There will be rules about the use of common elements such as the cleaning up after pets, no obstruction of hallways, etc.
9.
 There are rules to control vermin in the units and common areas.
10.
 Garbage disposal has a list of rules that need to be followed.
11.
 There are rules about renting your unit.
12.
 Parking rules. You need to read these very carefully. The condo can ticket and may tow illegally parked cars.
13.
 There are rules about the use of elevators and moving in and out.
14.
 There are rules about the use of the amenities.
15.
 A no-pets rule may mean that you can’t look after a relative’s pet if they travel or are hospitalized. Pets include gold fish.
16.
 Some condos limit the weight of a dog, the number of pets allowed or the size of fish tank that you are allowed to have.
17.
 Some buildings do not allow owners or guests to bring their dogs through the front lobby. They must use a side entrance instead.
18.
 There is usually a fee charged to use the party room. The rules will also state when you must vacate the room and if you have to pay for extra security during your event.
19.
 The owners can requisition a special meeting to add, modify or repeal any of the corporation's rules.

If these documents say that owners can’t have propane barbecues, bicycles or TV antennas on their balconies and a quick look around the building shows that these rules are not being followed, then you must ask yourself what other rules are not enforced.

The declaration, by-laws and the rules must be taken seriously. If you violate any of them, the corporation may take legal action against you and force you to pay their legal expenses for doing so.

Annual Fire Inspection Report
Ask to examine the current Annual Fire Inspection Report and the latest Fire Inspection certificate. I have seen condos where a quarter of the units did not meet the Ontario Fire Code and there were defective or missing fire alarms in the common areas. The latest clear Fire Inspection Certificate can be years old.

Shared facilities
If there are shared facilities, not only do you want to look at them, you will want a copy of the rules and regulations, the shared facilities current budget, latest audited financial statements and see its current Reserve Fund Study.

If you ask to examine all of these documents, you will be a very unusual prospective buyer. How you are treated by the property manager when you are requesting these documents and asking for answers to your questions will give you an idea how transparent and cooperative the manager and the board will be if you become an owner.

I expect that many sellers and condo managers may not be willing to cooperate with you wanting to look at all these documents. If they will not cooperate, move on. There are many, many other condos for sale.

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