Property Management

July 30, 2021 Published by South Alberta Chapter - By Nicholas Fuss

Birth of a Condominium Corporation: Perils

From the Summer 2021 issue of the CCI South Alberta CCI Review

Many of the issues we see today in the new condominium world end up costing the new end-user owners. Seeking recompense from the original Builder/Developer is often a seemingly insurmountable challenge that is most likely not going to be successful. So, the question is what can we do as an industry to improve this, and what can Owners and Property Managers do to better equip themselves when coming into a new property?

The tough reality of new construction is that the model for many developers is based on the rapid nature of building with little foresight into long-term ownership. Some Developers operate on a business model that rewards a speedy turnover, with little to no incentive to ensure things are built to last and completed at the highest possible quality.

This almost exclusively results in what are often perceived as poorly completed turnkey buildings that end up having extensive issues in the first few years of operation, requiring hundreds of thousands (and even millions) of dollars in repair work.

The gray area that is under discussion here is the gap between Developer/Builder turnover and the new long-term owners getting their eyes on the building. Currently, many transactions are completed in such a manner where the condominium corporation is not yet developed, and as such the Developer creates the new corporation (birth) and acts as the corporation representative. The result is that the Developer acts as both the builder and the client — in this case at building ‘turnover’ the Developer must meet the strict and rigorous quality control and completion standards of… themselves? It doesn’t make a lot of sense in any world, and the reality is that by the time the owners in the building attain membership on the Board of Directors for the Corporation they are often left high and dry when it comes to anything that could be considered ‘wrong’ with the building.

These first people to assume a Director position for the Corporation in its adolescent years are often not equipped to hit the ground running and can be caught up in an overwhelming amount of building ‘growing pains’ while trying to figure out how to keep everything running and addressing new owner concerns in a freshly operating corporation. The Property Manager is also usually lumped into this scenario (the ‘churn’ as I like to call it) in that they are doing everything possible to support the new Board, but typically their involvement is almost entirely encompassed by the day-today operations — just keeping things going.

In this scenario an outside consultant can help with the very first question that often arises — “what is wrong with my building?” This likely requires multiple disciplines to be brought in to conduct what is colloquially known as a ‘Technical Audit’. The audit gives the Board and Property Management an inventory of how their building was built, what the current condition is, and how it compares to what was supposed to be built. In tandem with the aforementioned items, these audits usually include commentary on industry best practices, Code requirements, and help to identify both immediately apparent issues and some warning signs that may indicate longer term costs that will need to be borne by the Corporation. While these initial investigations are helpful to help establish what condition the building is in and what work needs to be done, typically by the time this initial investigating is completed the Developer and Builder (if applicable) are usually long gone, with any limited warranties long since expired (don’t get me started on the value of warranties). Not all Developers are guilty of this, and some will return and correct issues as they have a high sense of pride and don’t want a tarnished image. However, these are usually not the ones that we (Consultants) have to deal with — it is the ones that cut and run that cause owners’ endless headaches and bleeding wallets. If preliminary negotiations yield no results, litigation can be pursued if a case appears to be valid (this is a topic for an entirely separate article); however, the results of litigation are not guaranteed, and can stretch out for years, and even decades, all the meanwhile the issues persist and get worse. Not to mention the legal fees! This is usually an absolute last case scenario, but the unfortunate truth is that many Condominium Corporations end up with this action as their only option, knowing they will likely not recoup the countless dollars they have to sink into their new building as a long-term investment. During these investigations, negotiations, deliberations, reviews, testing, and other consulting, the issues typically that are present continue to get worse, and the cost to rectify them can increase exponentially. The sad truth that we often have to convey is, even if money isn’t available, the issue is not going away, and it will likely get worse. The longer it festers, the worse (and more expensive) it is to excise.

Out of all this, we consistently try to find ways to not repeat the mistakes of the past. The current victims of this cycle of new building turnover have the dubious honour of informing the new construction industry at the turnover phase in hopes that improvements can be made with minimal sacrifice. At the end of the day, unless a new idea is proven to be viable for all parties it typically ends up as one of those idealistic scenarios that will never come to fruition in the real world.

In recent years, consultants have been pushing to form relationships with Developers and Builders and convince them of the benefit of having a third-party act as the quality assurance manager for the building. This third party will assist throughout construction in making sure things are done to the highest of standard, resulting in a greater quality product. This begins on the drawing board (ie: a screen) by involving consultants early in the design stages to help inform where cost savings can be achieved, where potential issues may arise, and assist with all manner of the design process from product selection to final warranties. From this point on the Consultant can assist with reviewing the progression of the work to add to assurance that short cuts are not being taken, and the long-term investment is being pieced together in the best manner possible. It is this partnership, that if built on a foundation of trust and assurance, will provide the type of building that anyone would be proud to hand over, and even more importantly proud to live in. This is not an easy cycle to break, and no single iteration will be the perfect solution; however, only by attempting to rectify the mistakes of the past will we begin to see progress towards removing the term ‘condominium’ from the collective swear jar.

“A successful negotiation is one where all parties walk away equally disappointed.”
– Brian Shedden, Entuitive