September, 17 2020 - CCI Original Content Published by CCI National
Part 5: Planning, Financial and Other Responsibilities
This section introduces an overview of the annual calendar of tasks, monthly administration for Condominium Corporations, and some of the legislation that governs a Board of Director’s actions and decisions.
The Annual Plan
All Condominiums run on an annual calendar, an annual budget, an annual report to the owners and yearly contract renewals etc. The fiscal year is usually related to the original date of registration. The best practice for any Board of Directors is to develop an annual plan that sets out the expectations contained in the budget and pinpoints when the work will be done. The plan will set the month for the AGM and the dates for Board meetings. It will also identify the renewal dates of the contracts and the insurance policy and the dates for routine maintenance and routine communication notices. The plan needs to be discussed, approved and communicated. See Appendix 2 for an example of items that we recommend be considered.
It is important to understand the meaning of community living in a Condominium and the differences between Condominium living and living in a house before discussing budgets, costs, collections, money, financial statements, cheque signing and audits.
Living in a house allows freedom that is not possible in a community living environment. For example, projects around the house such as fixing the fence, the roof or cleaning the windows can be delayed when the money is not available. Moreover, the garden maintenance, snow removal and lawn care may be done at a convenient time, regardless of the neighbor’s opinions, or at least until the municipality becomes involved.
In a Condominium, ignoring matters is not reasonable. Owners expect the building to be clean, orderly and in good condition. Owners considering resale will want good curb appeal. Others will want the fence and roof fixed, windows cleaned and attractive landscaping because that is the environment in which they want to live.
Owners must realize that their personal financial circumstances and expectations do not and cannot determine the Condominium’s costs; it is the collective circumstances and expectations of all in the Condominium which determines them. Owners also need to understand that not all costs benefit all owners equally – though all owners contribute to all costs.
Budgets, Common Element Assessment (CEA) Fees and Collections
The budget for a Condominium is set annually and does not require the vote of the owners. The budget identifies all the services and costs of running the Corporation.
Once the budget is approved, the Board should send a budget letter and a copy of the budget to every owner. The letter should outline the reasons for any increase and/or changes and challenges that the Board considered in the budget process. The letter will also advise of the new fee amount, payment options and where to send their payment and or preauthorized payment form (PAP). Condominium fees for each unit are calculated by multiplying the total by the allocation of the unit as indicated in the Declaration. It is recommended that the budget be a short form as opposed to the large working document that is presented by the manager to the Board; however, still providing all the line items and detail of service levels and costs.
In years of economic challenge, when incorporating more than a cost of living increase, the Board should hold a meeting after the budget has been prepared to inform owners about the cost considerations that the community faces, and to enable them to voice their concerns. Feedback is important so Directors can determine that they have appropriately balanced the needs of the entire community and chosen the quality of goods and services the majority of owners indicate that they desire and for which they are prepared to pay.
The by-laws for the Corporation will set out how owners are required to pay their CEA fee. The industry standard is that owners pay by either post-dated cheques or by PAP. As industry options change, online banking options will likely become an option for owners. Cash should never be accepted for CEA or any other payment owed by a resident or owner.
An owner is required to contribute and cannot be exempt even if they have waived or abandoned their rights to use the common elements, or if the owner is making a claim against the Corporation and/or if the Declaration, by-laws or rules restrict the owner from using the common elements or part of them.
If an owner defaults, the Corporation has the right to require a lien against that owner’s unit for the unpaid amount together with all interest owing and all reasonable legal expenses incurred by the Corporation, in connection with the collection or attempted collection of the unpaid balances. Should the owner fail to pay, the Corporation has 90 days to register the lien to give the Corporation priority over the mortgage.
While the Provincial Legislation protects the Condominium from nonpayment by owners, and the collection process will be set out in the by-laws of the Corporation, the Board of Directors should review the process and set a clear policy. This will ensure a clear understanding regarding interest and collection fees, notification requirements to the owners before the legal process begins and charges for collection.
Money and Banking
The Provincial Legislation also sets out what Corporations can do with the money collected. Typically, a common surplus “shall be applied against future expenses or paid into the reserve fund and except on termination, shall not be distributed to the owners”.
Corporations are required to maintain one or more bank accounts in its name designated for general operation and one or more bank accounts in the name designated as a reserve fund account. In general practice, Condominiums usually have one bank account for operations and one bank account for the reserve fund. The property manager will set up the accounts at a major bank, a trust company, a loan Corporation, or a credit union authorized by law to receive money on deposit. Property management companies generally contract with one financial institution to procure the best interest and lowest charges on behalf of their clients. As such, the Condominium will generally utilize the institution with which their management company has these agreements.
CEA fees should be collected on the first of the month and deposited into the operating account. A transfer for the reserve fund portion of this payment should be made no later than the following day to meet the requirements of the Provincial Legislation. Most management companies can do an automatic transfer, or the Board should be asked to sign a series of post-dated cheques payable to the reserve so that this transfer can be made in a timely fashion.
The Board of Directors will be required to sign the bank authorization documents to set up the bank accounts and designate the signing officers.
To ensure timely utility payments, most Corporations utilize preauthorized payments (PAP), (also known as electronic funds transfer (EFT)) opportunities with suppliers. This is particularly useful for utilities who charge large penalties on late payments. As long as the management company provides financial statements that provide schedules showing these payments, the Board should be comfortable in making payments in this manner.
There are generally three options regarding the signing of Corporation cheques:
- Two Directors sign each cheque
- Two authorized officers of the management company sign each cheque
- One Director and one authorized officer of the management company sign each cheque
In most cases, all Directors are given signing authority, with the understanding that the Treasurer is the person who would most often be called upon for signature. This ensures continuity of understanding of the payments. However, in the Treasurer’s absence, any one of the Directors may sign a cheque.
Option No. 1 is rarely used as it is the riskiest. When two Directors have access to the funds, there is more likely a chance of collusion, which could result in a loss of funds. The Corporation’s insurance provider will specifically ask who signs the cheques and how many people sign the cheques. If the cheques are not co-signed by a third party, a bond to cover theft of funds will not be granted.
Option No. 2 is used most often by town home communities, very small corporations, and common element condominiums that have very few cheques to sign each month and where it is a challenge to deliver the cheques to a Board member for signature. There is usually no office or security desk to drop them off, and the cost of a courier can be restrictive. Some larger Corporations adopt this method when there is trust and confidence in the management company’s financial procedures.
Option No. 3 is the most common method used. This reflects a partnership of responsibility not only for producing complete and correct payments, but timely payments as well. However, the Board should clearly understand who the signing officers for the management company are to ensure they are in a senior position and so that the Board can confirm the signatures.
For proper financial risk management, the site manager should never be signatory on Corporation cheques as they issue payment approvals and purchase orders. Each Corporation has challenges ensuring the cheques are signed in a timely manner. These challenges will often be the deciding factor on how the cheques are signed.
Due to the size of the major management companies, the number of cheques processed each month for signature is high. The use of electronic signatures will become more common for payments within the signing authority of the management company. In this case, the Board needs to be comfortable with the security in place to protect against fraud and errors.
The financial statements are usually prepared monthly by the management company. It is industry standard that financial statements are generally submitted to the Board no later than the 20th day of the following month.
Many management companies are sending financial statements electronically, or they can be found online. If not sent electronically, the statement will be part of the monthly manager report. The report should include a variance report where the manager identifies notable changes and concerns including investment information.
All Board members should receive a copy of the statement. At a minimum, the statement should include the balance sheet, the income and expense statement, the arrears schedule, the bank reconciliation for both the operating and the reserve bank account. The monthly Board meeting is often scheduled after the 20th of the month to ensure that the most current statement can be reviewed on a timely basis.
Once new statements are received, the previous month is redundant. So, if the Board meets every second month, only the most current statement needs review. The statement is not approved by the Board as it is not an audited statement and the numbers may change, especially if an item was overlooked and did not get posted to the correct month and is corrected later.
A Reserve Fund is a trust fund established by Condominium Corporations for the purpose of funding the major repair and replacement of common elements and assets. The Provincial Legislation states the minimum amount contributed in the first year after registration. The contribution amount that the Board of Directors determines after the first year must be based upon a Reserve Fund Study.
Contributions made by an owner to the Reserve Fund become the property of the Condominium. Owners do not receive a rebate of Reserve Fund contributions from the Condominium if they sell their unit. There is no credit for these contributions in the closing adjustments as, theoretically, the purchase price of the unit should reflect the “investment” that the unit owner has made toward the Reserve Fund.
The Provincial Legislation makes it mandatory for Condominiums to obtain an independent Reserve Fund Study from a qualified engineering firm or other permitted provider. The study analyzes the state of repair of the different components that make up the common elements, their remaining lifespan and project, in today’s dollars, the amount of money the Corporation will need to repair or replace each of the components over the next 30 years.
The Provincial Legislation requires the Corporation to obtain and maintain insurance on its own behalf and on behalf of the unit owners for damages to both the standard units and the common elements. The insurance must cover major perils and other perils specified in the Provincial Legislation, Declaration or by-laws. Major perils are defined as fire, lightning, smoke, windstorm, hail, explosion, water escape, strikes, riots or civil commotion, impact by aircraft or vehicles, vandalism or malicious acts.
A Condominium Corporation’s insurance obligation excludes improvements made to the units. A Standard Unit By-law, Standard Unit Definition or the Schedule provided by the builder will define what is included in a unit and, therefore, insured, by the Condominiums’ insurance policy.
The insurance coverage required by the Condominium Corporation must be for the full replacement cost of the property, subject to a reasonable deductible.
Unit owners should be encouraged to obtain their own insurance to cover improvements, deductibles, thief and liability, out of pocket expenses including accommodation, and meals. This may be seamless if provided by the same insurer as the Corporation’s insurer.
A Status Certificate is an important legal document which may be requested by a purchaser or any other interested party. A Status Certificate is prepared within 10 calendar days from the date of receipt of request and payment. Management companies will not start the process until the payment is received.
To avoid errors with the unit description the request must be in writing and be accompanied by the fee. The fee for issuing a Status Certificate is regulated in some Provincial Legislation, and in other provinces is at the discretion of the Status Certificate provider. The fee is payable to the management company or person preparing the certificate.
Some management companies charge an additional fee for delivery within 5 days, as opposed to 10 days. Most management companies require certified cheques or money orders due to the number of cheques bouncing, or real-estate agents changing their mind after the request and putting a stop payment on the cheque. Some management companies offer payment options such as Visa or debit and others have online ordering through a third- party for a fee.
Many Status Certificate packages are now done electronically or on CD. Most CDs are searchable so finding the pertinent information is quick and easy.
Status Certificates include information about the particular unit including if fees have been paid, about the Corporation such as if a special assessment is being planned, the status of the reserve fund, if there are legal draws against the Corporation, if any units are leased, if substantial changes have been approved but not implemented and confirms that the Corporation has appropriate insurance. It also includes copies of the Declaration, rules and by-laws, the budget and some other agreements specified in the Provincial Legislation.
Status Certificates are only valid for the date that they are signed. The management company or preparer does not take any responsibility for any changes in the information that occurs after that date. If there are active legal proceedings to which the Condominium Corporation is a party, consultation with the Condominium Corporation’s counsel is sometimes necessary to obtain the wording for the appropriate paragraphs in the status certificate. When the closing date is more than a month after the date of the Status Certificate, the purchaser’s legal counsel should order a new certificate. Verbal updates may be helpful but are not reliable.
If a Status Certificate is not prepared on time or omits material information that it is required to contain, the certificate is deemed to include a statement that there is no such information. If the Condominium does not provide a requested Status Certificate, it is deemed to have given a certificate stating that:
- There has been no default in the payment of common expenses for the unit
- The Board has not declared any increase in the common expenses for the unit since the date of the budget of the Condominium Corporation for the current fiscal year
- The Board has not levied any assessments against the unit since the date of the budget of the Condominium Corporation for the current fiscal year to increase the contribution to the Reserve Fund
It is also imperative that the content of the Status Certificate is correct because it is a snapshot of the facts and obligations surrounding the unit for which it is issued. If information in the Status Certificate is inaccurate, then the consequences are borne by the Condominium Corporation and the person who prepares the certificate.
The Status Certificate is made up of two parts, the certificate and the attachments. The responsibility of the Board of Directors regarding Status Certificates is set out in the by-laws. The by-law allows the Board to delegate the signing of the certificates and this is done by motion at a Board meeting. Due to the quick turnaround time, it is usual practice to designate the management company, or the person responsible to prepare the certificate, as the signing officer. The person completing the certificate(s) is responsible for the content, and they should carry appropriate errors and omissions insurance. The certificate should have two signatures, and the Board should review the certificate and its attachments at least annually to ensure that it is complete and correct.
Legislation that Affects Condominium Corporations
Human Rights Code
The Human Rights Code/Legislation is the provincial statute that prohibits discrimination against individuals on various grounds and in various contexts. A Condominium Corporation is subject to the Human Rights Code/Legislation because it is a provider of accommodation (housing), is a service provider, and is a workplace for employees. Disputes between an individual and a Condominium Corporation often end up before the Human Rights Tribunal.
Personal Information Protection and Electronic Documents Act (PIPEDA)
This statute prescribes requirements on how organizations engaged in commercial activity can collect, use, store, and disseminate personal information about an identifiable individual. While there has been some discussion amongst the Condominium legal community as to the applicability of PIPEDA to Condominium Corporations, the general opinion is that it does apply; therefore, the requirements therein are triggered when dealing with unit owners’ and residents’ personal information.
Occupiers’ Liability Act
A Condominium Corporation is the “occupier” of the common elements for the purposes of liability under the Occupiers’ Liability Act. The occupier of a premises owes a duty to take such care in all circumstances as is reasonable to see that persons entering on the premises, and the property brought on the premises by those persons are reasonably safe while on the premises.
Occupational Health and Safety Legislation – Workplace Violence and Harassment
Under the workplace violence and harassment provisions, a Condominium Corporation is considered a “workplace”; therefore, the Board of Directors must develop policies respecting workplace violence and workplace harassment, develop programs implementing the policies, conduct risk assessments to understand the risks of workplace violence at their Condominium Corporation, and provide information to workers on the contents of those policies and programs.
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This is solely a curation of materials. Not all of this information is created, provided or vetted by CCI. Some of the information is only applicable to certain provinces. CCI does not make any warranties about the reliability or accuracy of any information found in the materials on this website. The information is not updated to reflect changes in legislation or case law and therefore may not always be current and up-to-date. We suggest you seek professional advice with respect to your specific issues or regarding any questions that arise out of the material. We will not be liable for any losses or damages in connection with the use of any of the material found on the website.