There has been a substantial increase in the number of condominium developments in Ontario over the past decade as the population continues to grow. When purchasing a condominium, obtaining the status certificate is one of the most vital steps in the entire process. As a unit owner, you have an interest in the property’s common elements. Thus, you share an interest in the assets and liabilities of the corporation. Before buying a condominium, it is important to make yourself aware of the financial and structural health of the condominium corporation by having the status certificate reviewed by your lawyer. The consequences of ignoring this document could be catastrophic.
What is a Status Certificate?
A status certificate is a document that contains information about a condominium corporation’s financial and legal health. It sets out the corporation’s budget, common expenses, any ongoing legal proceedings, insurance status, upcoming major repairs or maintenance issues, and the corporation’s reserve fund as mandated by The Condominium Act in Ontario.
What to Look for in a Status Certificate
The status certificate will confirm the legal description of the unit, including lockers or parking units. This is crucial, as in some cases parking units or locker units are not owned but are instead used by the seller. A thorough review of the status certificate will confirm what the seller owns and what exclusive rights are transferable to the purchaser.
The condominium corporation may be subject to legal proceedings and might have judgements against it. These judgements might be divided among the unit owners resulting in a special assessment fee. Thus, a review of the status certificate would provide the potential buyer with the information to properly determine whether this will affect the common element fees or cause a special assessment in the near future.
The financial statements outline expenses, receipts and the current year’s budget which gives you a good indication of how fiscally healthy the condominium corporation is.
The reserve fund is separate from the condominium’s operating fund, and it is used to pay for major repairs and replacements to the condominium’s common elements. The status certificate would also include a reserve fund study. This is a study required to be completed every three years under the governing legislation and is prepared by engineers and accountants who provide an opinion on how much money needs to be in the fund to ensure that repairs can be paid for in the future. A portion of the unit owner’s monthly common expenses fee is deposited into the reserve fund every month. As a result of the report, the corporation is not only able to budget but is also able to project how much money is to be allocated into a reserve fund for the years to come.
Rules and Regulations
Status certificates outline information concerning your enjoyment of the unit and common areas including rules and regulations around pets and building amenities, so you will want to ensure that their by-laws and regulations are suitable for you. For example, a potential buyer could have purchased a condominium with an intention of renting out the space to tenants. However, if the rules of the condominium corporation dictate that leasing is not permitted, then the purpose of the purchase would be rendered pointless. Furthermore, suppose the potential buyer has a pet dog. It would be important for the buyer to be aware of any restrictions the condominium has on pets.
The review of the status certificate is more or less like the inspection on a house: you look for red flags. When reviewing a status certificate, a knowledgeable lawyer will identify any potential issues that could result in a substantial increase in common expenses or any other unpleasant surprises in the future. Generally, you should never make a firm offer on a condominium without having your lawyer review the status certificate. A typical Agreement of Purchase and Sale of a condominium should contain a provision that the offer is conditional upon the review of the status certificate by the buyer’s lawyer. The importance of the review of a status certificate cannot be overstated and should never be overlooked.
The lawyers at Mills & Mills LLP have advised numerous clients on any potential pitfalls relating to their real estate purchases. We will complete a full review of all relevant documents affecting your purchase and ensure you are fully informed before closing.