A condominium maintenance expert is warning that chronic low-balling of future building repair costs is leaving new owners unprepared for potentially major fee hikes in the coming years.
“It’s like watching a train wreck in slow motion,” said Sally Thompson an engineer who has worked in the industry for almost 30 years and runs Synergy Partners Consulting Inc. The company advises building managers on maintenance studies. “I hate to slam my own industry, but over and over I see studies that completely and thoroughly underestimate future costs. I have politely worked at this for a decade; I want to retire soon and I don’t want to retire unless this is fixed.”
The worst-case scenarios are not hypothetical: In 2021, it was revealed in court filings that York Condominium Corporation No. 82 – a 50-year-old 321-unit building near Jane and Finch – faced an $11-million repair backlog that would require every apartment owner to chip in between $30,000 and $40,000 to cover the costs or risk having their apartment sold out from under them.
Ms. Thompson laid out a number of her concerns in a recent paper that hits on everything from the impacts of rapid inflation on maintenance budgets designed for pre-pandemic repair cost estimates to governance issues baked into the existing condominium regulations.
In Ontario, legislation requires that condominium building managers must perform reserve fund studies that examine what the likely costs of potential repairs will be with a 30-year-time horizon. Ms. Thompson said that is insufficient for new buildings.
“When you have a brand new building, it’s just like a new car: you don’t need to spend any money for a while. So for the first 20 years of the building you have very few repairs, but after 20, everything starts to need to be replaced: the boilers, the caulking [around windows], the roofing, everything. And so when you only look forward 30 years, you’re basically planning for 20 empty years and 10 busy years.”
Her preferred timeline is 45 to 50 years, which helps nudge current owners to pay something closer to the true cost of their residency.
“I have been the beneficiary in the early years of being in the building of what I would call lower than suitable fee increases,” said Ted Cadsby who has been living in his Avoca Vale apartment for in midtown Toronto for 10 years. For the past three years he’s been on the board of the corporation that manages it. “The former boards took great pride in keeping the fees low, [around 2-per-cent growth a year at the most] and they were able to do that by not building as robust a reserve fund as they could have and probably should have.”
Finished in 1998, Avoca is now 24 years old. The building recently spent $500,000 on an elevator modernization, it needs to spend potentially hundreds of thousands of dollars to fix a leak in the below-ground parking structure, and residents are also pushing back against proposals to spend another $500,000 on updating the decor in the hallways and lobby. None of these fixes could have been covered by the almost 20-years of reserve fund maintenance fee contributions, which has led to a phased-in annual increase to the fees of 6 per cent a year. The alternative was a special assessment of a one-time contribution of tens of thousands of dollars. “So the current owners in the building are essentially subsidizing the early owners who got away with low fees,” Mr. Cadsby said.
Mr. Cadsby still has the support of his board, but disputes over fees can lead to serious disagreements, and Ms. Thompson has seen entire boards get recalled when maintenance issues come home to roost.
When Frank Naphan and his wife downsized to live in The Gazebo condos in Thornhill in 2004, the building was already 27 years old but the fees were still quite low; about $500 a month. About 10 years after moving in, Mr. Naphan stood for election to the board and said he was shocked at what he found.
“Wow, I mean, they hadn’t done work for years. There was all kinds of engineering studies that had been ignored,” he said. When Ms. Thompson’s firm performed a reserve fund study it found a number of potentially pricey issues, but the most serious one was deteriorating concrete in the roof of the attached parking garage that could be nearing collapse. The costs to fix it? Mr. Naphan recalls estimates starting at $2-million.
“We raised the monthly fees about 200 bucks, and we also got approval for a loan up to $1.5-million in case we needed it,” he said, and then the board proposed a $7,000 special assessment to get the building’s books back in order.
“The owners went into revolt. … Sally came to help us with some town hall meetings with the owners and she was abused mightily. It was sort of like a Trump political rally at these meetings, and people just weren’t listening,” he said. The owners banded together to recall the existing board and vote in an entirely new slate. “I had been re-elected the year before without any trouble so I had a three-year term, and they replaced me. They just were not going to pay a special assessment,” Mr. Naphan said.
The engineering work to fix the garage was still necessary, but according to Mr. Naphan it has proceeded piece by piece in fits and starts over the past two years since he was removed from the board. The new board – which includes such prominent Toronto figures as Liberal MP Judy Sgro – left in place the $200 increase his board voted for, but cancelled the special assessment.
With the pace of condo building only increasing Ms. Thompson is urging provincial governments to put stricter rules in place to force boards to raise the appropriate amount of money for future repairs. There were 30,844 condos pre-construction condos sold in 2021 close to the all-time record set in 2017 (31,216 units), according to research from Urbanation Inc. While the number of units completed every year is typically lower – there were 13,885 condo units newly occupied in 2021 – that’s still tens of thousands of new owners who may be unaware of the true costs of their condo.
“A lot of people are young buyers in these new buildings and they mortgage themselves to the hilt,” Ms. Thompson said. “Then we show up on the scene and say we need to triple the contribution to reserve and it ends up being like hundreds of dollars a month. It’s gonna be much bigger increases than you’re probably going to get on your salary.”
https://www.theglobeandmail.com/real-estate/article-ontario-condo-reserve-funds-a-train-wreck/