Whether you’re buying or selling a condo, a status certificate is an essential document that, although less than exciting, provides all the financial information you need to know about the condo unit and corporation. So here we look at the gory details of this crucial document and why you not only need one but absolutely shouldn’t make a move without one.
What is a Status Certificate?
A status certificate provides all the information related to a condo unit and the condo corporation, including:
- The financial status
- Condo fees, both current and possible increases likely to come into effect
- Special assessments being contemplated by the board (we go into more detail about this below)
- Arrears or liens on the condo unit
- The condo declaration, rules, and by-laws (that you have to adhere to when living there)
- Reserve fund status (money put aside to cover major common area replacement costs)
- Insurance for the common areas and building structure
- Management contracts
- Minutes of the last annual general meeting
- Lawsuits involving the corporation
The status certificate also provides valuable insights into the condo community and the type of management team/board you’ll be dealing with. That means you’ll better understand any possible bylaws and rules that don’t align with your lifestyle, from your rambunctious pet companion to your BFF’s penchant for smoking on your balcony.
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What’s a Status Certificate Actually For?
The status certificate provides a single source telling you everything you need to know about the unit and building. With the status certificate, it is possible to make an informed decision on your purchase or, in the case of a seller, to have the legal documents required for a sale.
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Who Updates a Status Certificate?
Status certificates are maintained and updated by the condo’s board members. However, they typically pass the responsibility on to their property or financial management company due to the sheer volume of the document. The board ultimately has to ensure the status certificate provides information showing the following:
- The corporation’s ability to meet all financial obligations
- The risk of special assessment costs or high common expense increases passed onto the condo owner
- Outstanding common expenses on the unit
- Issues with unpaid taxes
- Updates to the declaration, rules, and bylaws
In other words, the status certificate is all about transparency during real estate transactions.
What’s the Deal with Reserve Funds & Special Assessments?
This is a very important question, especially for first-time condo buyers. Condo boards are expected to use the common element fees condo owners pay each month to cover building maintenance costs. In addition, the board is expected to set aside enough money in a “reserve fund” to cover the costs associated with repairs and replacements for major building elements like HVAC systems, roofs, lobbies, swimming pools, and garages.
Special assessments occur when a condo board fails to properly manage the building’s finances. As a result, the reserve fund lacks the money required to cover major expenditures, which means unit owners must cover those costs. Obviously, special assessments are something you want to avoid as a condo owner. A common cause of insufficient reserve funds and special assessments is the board’s failure to make annual, small increases to common element fees or not having a reserve fund at all.
The status certificate must show the reserve fund’s status, the condo’s overall financial health, and the risk for special assessments. A real estate agent and lawyer will review the status certificate and look for risks of special assessments or reserve fund bankruptcy. With this information, you can either pass on the condo, ask for a reduced price, or budget for the inevitably of paying more for underfunded projects. We wouldn’t recommend the latter, as reserve fund issues tend to be chronic!
Also, suppose you move in and find a notice of special assessment lands at your door. In that case, if the status certificate provided at the time of the sale didn’t indicate a special assessment was likely, you can challenge the board’s request for you to pay your portion. As a result, your share ends up being split among the other owners.
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How to Obtain a Status Certificate
Owners selling a condo and prospective buyers typically arrange to obtain a certificate via a real estate agent, lawyer, or bank. It usually takes about 10 days for the request to go through, and the condo’s property management company will likely charge an administration fee of $100 plus HST.
Status Certificate Red Flags
Some status certificate red flags we look for include the following:
Missing or Underfunded Reserve Funds
Healthy reserve funds should have a balance higher than projected costs for the current fiscal year. They should also show healthy expenditure trends for previous years with a logical comparison between the actual and expected costs for any given project. Reserve funds should always succeed in meeting expected replacement costs, with clear records showing they align with predicted costs.
Constant Common Element Fee Increases
Small, incremental common element fees show fiscal responsibility on the condo board’s part. However, constant increases of varying percentages show an illogical approach to reserve fund management likely related to reserve fund depletion.
Records of Legal Proceedings and Claims
A condo corporation with a history of claims and legal proceedings is a sign that something is amiss with the management. If the court sides with the complainant, the condo has to pay damages, which can lead to a special assessment. Also, a status certificate free of legal issues is a pretty good sign that the management and corporation tend to act in good faith. A bunch of lawsuits could be related to questionable or even illegal actions pulled by condo board members.
Outstanding or Incomplete Projects
Incomplete projects are another sign the condo board isn’t up to snuff financial-wise. But, again, this is likely related to a lack of funds, which increases the risk of rising common element fees and/or special assessments.
Although a status certificate makes for some pretty dull reading, we always ensure the Agreement of Purchase and Sale is conditional based on receiving the status certificate. We also provide ample time to review the status certificate so your lawyer and our team feel 100% confident you aren’t walking into a condo nightmare.
If you’re looking for the best Toronto real estate team to guide you on your condo real estate decisions, call The Christine Cowern team at 416.291.7372 or email us at email@example.com. We’d love to work with you!