Finances

July 8, 2022 Published by Huronia Chapter - By Ryan Griffiths, Robert Weinberg, Chris Jaglowitz

Borrowing

From the CCI Huronia Summer 2022 Condo Buzz Newsletter

Borrowing is becoming more common for condominium corporations. The loans are repaid by the monthly condo fees, typically to avoid a special assessment so that not only the current owners are paying a current shortfall, but instead the cost is paid by owners (potentially multiple owners) over time. The condominium can borrow as a corporation so that each owner does not need to qualify for individual financing. When a unit sells, the payments for the loan are transferred to the new unit owner over time in a seamless process as the condominium corporation pays the loan back from the condominium fees. The right solution depends on a number of factors that need to be explored with a lender that is experienced with condominium loans. More Boards are choosing to present borrowing to their owners as an option so that the owners can decide how to fund the projects that need to be carried out. This process can empower the condo owners to decide the best approach for funding as the owners have to vote on a borrowing bylaw in order to proceed with the loan.

Ryan Griffiths
CWB Maxium

Why does it make sense for a condominium corporation to borrow money? There are many reasons, and a lot of it depends on the type of condominium you are and situation you are in. Whether you are a condominium facing a deadline to payout a mortgage to the Declarant, you have a shortfall and need to levy a special assessment, or you’re facing a looming major capital project – borrowing money on behalf of the Corporation often makes sense as opposed to the alternative. One reason to borrow is that it can alleviate a large special assessment on unit owners, which is more fair to current owners who may be new to the property or don’t plan to live at the condominium for long. Another reason is the way the loan can be structured, as the corporation can borrow the money as they need it, which minimizes interest costs and the makes sure you only borrow the required amount of funding. However, the main reason a condominium corporation would turn to borrowing money is to keep condo fees as low as possible. Keeping your condo fees competitive is very important for your condominium, as you don’t want to make it financially difficult for someone in your community and you also want unit owners to be able to sell their unit at their highest value.

A few things to keep in mind if your condominium corporation is looking into financing:

• Make sure you take into consideration additional fees and costs associated with your lender & legal partners
• Plan ahead – the process of lending, drafting & voting on a borrowing bylaw takes time and unit owners need to be well informed of the current situation
• Will this loan impact the salability of our units?

Overall, it’s important to exhaust and weigh all your options when it comes to raising additional funds for your condominium corporation, and often borrowing money versus levying a special assessment on current unit owners makes sense.

Robert Weinberg
Percel Inc. CCI

Condo boards often ask if their corporation's original borrowing bylaw (the one passed while under developer control) is sufficient to authorize major borrowings many years later. It is not. Corporations require a specific borrowing bylaw to authorize each specific borrowing. It's important to know the most your corporation may need to borrow, so the borrowing bylaw can be drafted with an adequate upper limit. It is the Board (and not owners) who start the process of enacting bylaws. The owners of a majority of all the units must vote to confirm the borrowing bylaw. Electronic meetings with e-voting platforms are very useful and holding town hall meetings with owners ahead of the voting meeting is a great practice as it allows the owners to gain the insight needed before they are voting. A lawyer will work with the lender to review the documents and not all lenders are created equally. Many banks are not well aware of the specific needs of condominium corporations so working with a lender with condo expertise will reduce delays, complexity and cost of the loan transaction.

Chris Jaglowitz
Common Ground Condo Law