As discussed in an earlier blog, Introduction to Condominiums, there are many reasons for buying a condominium ("condo") instead of a house. Condo owners enjoy many of the benefits of home ownership, including individual taxation and potential gain on resale, in many cases without the burden of maintaining the exterior elements, such as mowing the lawn or shovelling the driveway.
However, when purchasing a condominium, a buyer needs to be aware that he or she has to accept the limitations of being a part owner of the common elements together with the responsibilities of being an owner of the unit. It is important that a prospective condo purchaser receives adequate information about the condo corporation and its finances before committing to the transaction. The Condominium Act, 1998 provides considerable protection to the purchasers of new condominium units by mandating at law certain disclosure requirements. These statutory requirements do not extend to resale condominiums. As such, prospective resale condominium buyers need to take certain steps to protect themselves.
Status Certificate
First, one of a resale buyer's top concerns should be the financial outlook of the condo corporation. Where a condo corporation is experiencing financial difficulties, a buyer can expect that the common expenses will increase dramatically in the near future to compensate. As well, poor financial status can be indicative of poor management or of major structural problems.
Under the Condominium Act, 1998, the condo corporation is obligated to provide a Status Certificate to anyone who requests one after the payment of a small fee. The document provides considerable detail of financial, organizational, and other issues relating to the condo corporation. It is a strong substitute for the statutory disclosure requirements associated with purchasing a new condo.
Agreement of Purchase and Sale
The Status Certificate is of most use before actually entering into a binding agreement of purchase and sale. Based on the information provided in the Status Certificate, a prospective buyer can make an informed decision regarding whether or not to purchase the unit. Once an agreement of purchase and sale has been signed, the buyer's options for getting out of the transaction are limited.
As a result, it is common practice for lawyers or real estate agents to make agreements of purchase and sale conditional on receipt and review of a Status Certificate. If the buyer does not receive a Status Certificate or does receive one and does not like what he or she sees, the buyer can terminate the agreement and walk away within a certain amount of time.
Other Financial Disclosure
As with the Status Certificate, under the Condominium Act, 1998, condo corporations are also obligated to produce other important documentation on request. A smart prospective purchaser, who takes advantage of his or her rights, can obtain a copy of the corporation's current budget, copies of the last annual financial statements, the auditor's report, copies of any insurance certificates, and copies of the current declaration, by-laws, and rules. Many of these are provided with the Status Certificate, but not always.
Summary
All in all, despite the fact that the Condominium Act, 1998's strongest disclosure requirements only apply to the purchase of new condominiums, there are still powerful tools available to resale buyers that allow them to make informed purchasing decisions and protect themselves.
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