When purchasing any real estate, the onus falls on purchasers to investigate the state and quality of the property they intend to buy. When considering units in apartments, condo buildings, townhouses, and even duplexes, purchasers should ensure they have a subject condition in the Contract of Purchase and Sale allowing them to review and approve various strata documents.
The primary documents a purchaser should review are:
1) bylaws and rules
2) minutes (council meeting minutes and AGM/SGM minutes)
3) financial reports & depreciation report(s)
4) Form B Form F
5) new home warranty policy, if applicable (being 2-5-10 warranty, applicable for newly built units)
Bylaws and Rules: Strata and Real Estate Property
An important document that purchasers should be sure to review is the strata’s bylaws. Many strata’s will incorporate the standard bylaws, which can be found online, attached to the Strata Property Regulations. However, some strata’ will create their own tailored bylaws.
Regardless, it is very important that purchasers carefully review and understand the strata’s current bylaws to ensure there will be no unexpected surprises that will impact their desired use for the unit. Purchasers should pay particular attention to any restrictions contained in the bylaws, such as age, pet, parking or rental restrictions (including short-term accommodation prohibitions). Purchasers should also be wary of their future obligations and liabilities – for example, an owner may be liable for water escaping from his or her unit, regardless of fault or negligence.
In order to protect themselves, prudent purchasers need to purchase additional homeowner insurance to cover potential liabilities that are left out of the strata’s insurance policy. As well, as if the strata is an older building, the owners over the years may have renovated – updated flooring, moved walls, or altered plumbing – and the strata no longer has an obligation to insure the alterations. The strata insures what the developer originally installed, and any changes will likely be the responsibility of the owner to insure.
While a strata corporation must have bylaws, it may also create rules. Rules govern the use, safety and condition of the common property and common assets of the strata. Note that only bylaws can govern the use of the strata lot, so if a rule appears to govern the use of the strata lot, it may be unenforceable. Careful review by an experienced strata lawyer is generally necessary to determine whether bylaws or rules are enforceable or not.
Purchasers should also review meeting minutes, which will include budgets and financial reports. When strata council holds a meeting, an annual general meeting (AGM), or a special general meeting (SGM), minutes of the meeting are produced and retained by the strata for a period of time. Reviewing the minutes will provide purchasers with a sense of how the strata operate, how well organized it is, and what kinds of issues have arisen in the past and how the strata have dealt with those issues. Be cautious of discussions with respect to disputes, damage, and repairs.
Discussions of future issues and special levies (or assessments) – being one time charges borne by each of the owners of a strata to cover common strata costs – should also be considered. Purchasers should be alive to potential special levies for issues with balconies, building membranes, elevators, the roof, and other “big ticket” items. If the strata do not have enough money saved to cover future costs, then a special levy may be looming. It is important to consider how such special levies are to be treated by the vendor and the purchaser in the Contract of Purchase and Sale, as well.
Financial Reports and Depreciation Report(s)
These documents should be reviewed so purchasers gain a sense of the financial health of the strata. The financial reports will set out how much money is in the contingency reserve fund, the operating budget and fund, the number of maintenance fees collected, and how much money is owing to the strata corporation (ie. if there are owners that are not paying strata fees who are in arrears).
The contingency reserve fund is an account that is an asset of the strata that contains funds contributed by all of the owners of a strata (typically based on their unit entitlement). If there is not a healthy contingency reserve fund, the strata have not saved enough and the purchaser will need to consider if they will face large expenses in the future.
Depreciation Reports are intended to be a “point in time” study of the condition of the building and projections of future work required, estimated timelines, and cost. Purchasers should review this projection and compare it to the contingency reserve fund of the strata corporation (and the monthly maintenance charges) to determine whether costly future repairs will be borne through special levies. If the strata do not have a depreciation report, it means the owners have opted out of obtaining one, and purchasers should be cautious as it will be more difficult to determine their future risk for costly expenses.
Form B and Form F
The Form B “Information Certificate” provides information about the strata lot and the strata corporation, including among other things: the monthly strata fees payable by the owner of the unit, any amounts owing to the strata, any amount that the owner is obligated to pay in the future, the amount in the contingency reserve fund (minus expenditures that have already been approved), amendments to bylaws that have not been finalized, whether there I ongoing proceedings, such as litigation or arbitration, as well as details about parking stalls and storage lockers. The Form F “Certificate of Payment” documents whether the owner of a strata lot owes money to the strata. Prudent purchasers will review the Form F well in advance of the completion date to ensure the unit owes no money to the strata.
New Home Warranty
If you are considering purchasing in a newer building or complex, the strata may have a “2-5-10” warranty – being a 2-year material and labour warranty, a 5-year building envelope warranty, and a 10-year structural defects warranty. Whether there is an existing warranty should be documented in Form B.
If you are considering buying a unit in a strata building or complex and you have any questions or require legal advice, please contact Doak and Shirreff.
Danielle is a real estate, business law, and estate planning lawyer at Doak Shirreff. If you have any further questions regarding estate planning or wills, please contact Danielle Marshall at [email protected] or 250-979-2524. Alternatively, you can speak with Kate Snowsell at [email protected] or 250-979-2566.
This article is for general information only and is not to be relied upon as legal advice.