Borrowing by Condominium Corporations: How Does It Work? - by Jim Wallace
What are the challenges with the Special Assessment model? There is a strong possibility that a portion of the owners are unable to obtain the funds within the timelines of the Special Assessment, as the owners may not be approved for additional loans or funds from their financial institutions. This in turn could negatively impact the ability of the Condo Board to sign the repair contract as the full amount of funds are not then readily available to cover the repair costs. This is one of the benefits to borrowing through the Condominium Corporation as it offers immediate relief for Condo Boards and owners alike, by alleviating the anxiety of owners who cannot raise the funds and taking the stress away from the Condo Boards needing the repair work to be completed. Many owners can come up with their Special Assessment by their own means, but how many would prefer to use a condo loan if it was available? The following is an account of one of the Condominium Corporations I had an experience with to illustrate how the condo loan process can work. I will be using first person terminology for comprehension purposes only and in no way intend for this to be taken as marketing or advertisement. I believe that sharing this example will help explain the steps involved in the borrowing option and sincerely hope it will assist you if you encounter this issue in the future. In 2018 I began working with a Condominium Corporation where the owners were facing a Special Assessment in excess of $20,000 per unit to repair their common property.
The purpose of this article is to provide a basic overview of how Condominium Corporations can use powers granted to them to borrow funds on behalf of the owners. This article will give as much information as can be packed into it; but will not be able to answer every potential question the reader may have.
Jim Wallace is a highly respect- ed member of the Canadian condominium industry. In 2009, Jim created Condominium Fi- nancial Inc. Jim also is a mem- ber of the Canadian Condomin- ium Institute Northern Alberta Chapter. As a member of CCI NAC, Jim represents the insti- tute at a variety of functions and events helping to provide edu- cation through seminars, lec- tures, presentations and con- ventions enhancing the devel- opment and understanding of the condominium industry.
The first question generally asked is
“Why would the condominium need or want to borrow?” The response may sound familiar to you; “repairs are needed to the common property and there is not enough in the reserve fund to cover the costs”. This response is true if the Condominium Corporation is an older property needing repairs for wear & tear and upgrading; or if it is a newer property that may need to correct construction deficiencies; or if the property is any age and situation in between. Condo Boards are required by law to repair common elements on the property when necessary and cannot refrain from completing necessary repairs or absolve themselves of a difficult decision by deferring the repairs to a later date. This means they need to have the money to pay for the needed repairs in their reserve fund or acquire the amount needed if they currently do not have the money. Historically, Condo Boards, and the Condominium Managers that help
them, have only had one option available to them, this being the
Special Assessment model where each owner is responsible for paying their share of the funds required with a due- date for the payments to be made.
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