The horror of it all

One condo in west-Toronto has not raised their condo fees for the previous six years. They have held only two AGMs in five years and have not released any audited financial statements inbetween the AGMs. At the 2012 AGM they told the owners that they had $350,000 in the reserve fund. In reality they had less than $80,000.

They have been using the reserve funds to cover a series of operating fund deficits. The owners don’t know that but they do know that 40 apartments have serious water leaks coming through the building envelop that has been ignored for the last 20 years.

Whenever the property manager tells the board that they are in serious financial difficulties, the board refuses to listen. (It will give you great comfort to know that the treasurer  to have a degree in mathematics.)

Six years ago in a small condo in Windsor, the newly elected treasurer discovered that the condo was running annual operating deficits and the reserve fund had a deficit of $18,000. By increasing the fees, imposing special assessments and taking out a loan, the reserve fund rose to $170,000.

The problem is that the owners returned the original directors, the ones who froze the fees for years and ran the finances into the ground, and they are now determined to do the same.

What do the owners think? The elderly say that they will die before the repairs are needed and the young ones say that they are going to live there for only a few years as they plan to buy a house so neither group wants to pay money that will only benefit future owners.

An Etobicoke townhouse corporation was self-managed with the president running the show. For five years the owners paid a special assessment of $150 a month to pay for major parking garage repairs. There were no AGMs or financial reports.

Finally a group of owners hired a law firm, went to court and got a court appointed inspector and an administrator. The inspector found out that the reserve fund was empty and the condo owed hundreds of thousands in unpaid utility bills. He couldn’t discover where the missing money went.

The owners had to deal with city work orders that took millions to repair and the condo took the ex-president to court to try and recover $2 million in
missing funds.

When the chickens come home to roost


When major repairs can no longer be ignored, perhaps because the city’s inspectors issued impossible-to-ignore work orders, the board has to come up with the money.

Special assessments
Since the reserves are empty, the board will pass a special assessment or a series of assessments to pay for the work. The owners now have to dig deeper into their pockets.

Loans
When the needed repairs are too expensive to be paid for by special assessments, the board will ask the owners to assume a long-term loan.

Now the corporation is in the same sort of bind that a person gets into once they get into debt. Paying off loans, on top of paying for the common element expenses, makes it almost impossible to have any money left to put into the Reserves.

The trick is to pay off the loans and build up sufficient reserves before the next major repair become necessary. That never seems to happen because by now the owners will be even more resistant to higher condo fees.

Call in an administrator
When the board raises fees, informs the owners that smart meters are being installed or asks the owners to approve a loan, they may face an owners’ requisition to remove them.

In response, the board can apply for a court order to stop the owner’s meeting to give them time to apply to Superior Court for an administrator to assume the boards’ responsibilities.

Then the court-appointed administrator will have the power to squeeze the needed funds out of the owners or their mortgagees.

Owners’ responsibility
It is important that the owners be vigilant right from year one. The condo must have an Annual General Meeting every year and the owners must insist on annual audited financial statements and a fully-funded reserve fund. These are the board’s basic duties.

Later on, large shortfalls will not be made up; they cannot be made up.

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