Property values will go up

It slays me when owners are comforted when the lawyer chairing their AGM tells them that their property values are going to go up when the board is burning through the corporation's money as if it was a pile of autumn leaves.



Their inability to understand that this is THEIR money that is being spent is astonishing when you realize that half of them will drive an extra five miles to save 10¢ a pound on a dozen bananas.

Lets look at an older condo townhouse complex in Brampton when a new board gained control in the middle of 2010.

Fees
Common element fees

2008	2009	2010	2011	2012
$649,254	654,019	654,019	654,019	661,286
Special assessment
	129,992

Notice how the common element fees have stayed the same for at least five years. Up to 2010 year end, when a new board was elected, the assets and the operating and reserve fund balances were in reasonably good shape.

(They went up slightly in January 2013 from $252 a month per unit to $277.)

How do they do it?
When the reserves dropped in 2009 and was $199,268 below what the engineers recommended, the board levied a special assessment of $129,992 (equaling $600 a unit) to pay for street lights that were mandated by a city work order. The assessment was paid off in 12 months.

Note
Some boards make it a practice to keep fees low because owners hate fee increases and low fees help to keep the unit values high because potential buyers look for condos that have the lowest fees.


Here is a listing from a different condo that brags about having the lowest fees

A special assessment hides the condo's need for higher fees and if the owner pays off the special assessment before ordering a status certificate, the buyers, who can't read condo financial statements, won't catch on that the condo's low fees are a sham.

Requisition
It appears that this special assessment was the trigger that lead to the recall of the directors at a special owners meeting in 2010. The new board hired a different management company.

Painting the grass green


The new board unleashed a wave of contractors upon the property and, as one owner said, they did everything but paint the grass green.

2008	2009	2010	2011	2012
Assets
$215,911	224,733	418,054	178,669	20,748
Operating Fund (year end balance)
$38,547	46,175	53,877	-550	-98,415
Reserve Fund (year end balance)
$99,949	81,328	307,577	121,647	$ 11,298
Reserve Fund (year end deficit, as per Reserve Fund Study)
	-$199,268	-207,654	-569,830	-721,431

Owners warned
As you can see above, unlike the old board, the new manager and board were deliberately ignoring their budgets while draining the operating and the reserve funds. In the beginning of May 2011, the treasurer delivered a flyer to all the units warning the owners that the reserves were being rapidly depleted and he implored the owners to urge the other board members to stop the spending.

Treasurer removed
As a result of his being "unco-operative", the other directors successfully requisitioned a meeting to remove the treasurer from the board.

In the main, the owners were satisfied with the new board. Why not? A lot of work was being done around the property. Few understood the clear warning signs that the financial statements would show informed owners, either because they didn't look at them, they could not understand them or they had no concerns because their fees were not going up.

Meanwhile the corporation assets went from a respectable $418,054 down to $20,748; not enough to buy a decent Kia.

Clouds on the horizon
In early 2012, the municipality issued work orders to install fire stops. This work was suppose to be done in 1998 but it suffered by poor workmanship and it was only partially finished. The city gave the corporation until March 2013 to complete the work orders.

At the AGM held in August 2012 the engineer gave a report on the fire stop deficiencies and said that quotes were being gathered. When an owner asked how the repairs would be paid for, the corporate lawyer said that it is too early to speculate. (Neither were being candid with the owners—the people who were paying their fees.—editor)

Note:
The reserve fund study did not include the costs of installing the fire stops.

When an owner showed concerns about the reserve fund balance, the lawyer said: "Remember that the money that is spent from this fund is being put back into the units and common elements to increase property values."

As you can see by the figures above, by the time of this meeting, this corporation was a financial basket case. The operating fund deficit was $98,415 and the reserves deficit—as per the reserve fund study—was $721,431 for a grand total equalling 1½ years total income.

(Note how neither the board, the auditor, nor the lawyer were letting the owners know their condo corporation was in serious financial trouble.)

Special assessment
In December 2012 the owners were informed of a special assessment of $1.3 million to pay for the fire stops. Each unit had to pay $5,992.56 over 36 months starting in January 2013.

That sure got the owners attention. Finally they woke up.

After a couple of failed attempts to remove the directors, over half of the owners sold their units and moved out. As far as property values go, the units sold at, or close to, the lowest prices for a townhouse in the city.

Instead of the property being overrun with contractors, it was now overrun with moving trucks.

Note:
Some of the owners paid the special assessment in full prior to listing their units. That way, the special assessment did not show up on the status certificate. Other listings stated that the owners would pay the special assessment on closing.

Either way, the actual selling price was further lowered by the cost of the special assessment.


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