What are condo maintenance fees actually paying for?

A condo fee pays for common element maintenance, building services and the reserve fund, which Ontario law requires be studied again every three years.

Ontario condo fees are not rent, and they are not a service charge the building can spend as it likes. Your fee is your share of the corporation's common expenses, and the Condominium Act, 1998 decides what goes into it, who sets the amount, and what happens when it is not paid.

What does a condo fee actually pay for?

Two things at once: running the building this month, and replacing parts of it years from now. The Condominium Authority of Ontario, the body that administers the Act, says common expenses fees "are used for maintaining the condo corporation's common elements, contributions to the reserve fund, and paying for important services such as cleaning, building maintenance and condo management services."

The legal definition is wider than most buyers expect. The Act defines common expenses as "the expenses related to the performance of the objects and duties of a corporation and all expenses specified as common expenses in this Act, in the regulations or in a declaration". The last clause is the one that matters. Your building's own declaration can add items, which is why some buildings include heat or water in the fee and others do not. The declaration decides, not a rule of thumb.

The dividing line for upkeep is section 90(1): the corporation maintains the common elements and each owner maintains the owner's unit. Section 90(2) adds that maintaining includes repair after normal wear and tear but not repair after damage. Damage sits in section 89(1), where the corporation repairs the units and the common elements after damage, subject to the exceptions the Act sets out.

What is the reserve fund, and why does my fee keep going up?

The reserve fund is money set aside for major repair and replacement, and a large part of your fee goes into it. Section 93(1) requires every corporation to establish and maintain one. Section 93(2) says a reserve fund "shall be used solely for the purpose of major repair and replacement of the common elements and assets of the corporation". Section 93(4) says the corporation collects contributions to it from owners as part of their contributions to the common expenses.

The amount is not guessed at. The corporation has to commission a reserve fund study, and O. Reg. 48/01 requires another one within three years of completing the last, and within every three years after that. Within 120 days of receiving a study the board has to review it and propose a plan for the future funding of the fund (s. 94(8)), and the cost of the study is itself a common expense (s. 94(7)).

So a fee that rises is usually a study telling the board that the roof, the garage membrane or the elevators are nearer than the last plan assumed. A fee that has not moved in a twenty year old building is worth a question, not a celebration.

Is a low condo fee a good sign?

Not on its own. The useful comparison is not one building's fee against another's, it is what a corporation collects against what its own plan says it needs. O. Reg. 48/01 requires the financial statements to compare the reserve fund contributions the corporation has collected with the amount the board's funding plan under section 94(8) required it to collect, and to make the same comparison for the money spent out of the fund. A fee held down against a plan that says otherwise is a special assessment waiting to be announced.

Does my condo fee include property tax?

No. Section 15(1) of the Act says each unit, together with its appurtenant common interest, "constitutes a parcel for the purpose of municipal assessment and taxation". Your unit is assessed and taxed on its own and you pay the city directly, so budget for it separately from the fee. Our closing cost calculator covers the other one off costs that land at the same time.

Why is my neighbour's fee different from mine?

Because section 84(1) says owners contribute to the common expenses "in the proportions specified in the declaration". Those proportions were fixed when the building was registered and usually track unit size, with parking spaces and lockers carrying their own share. Two units on the same floor can pay different amounts, and no current owner voted on the split.

Section 84(3) closes the obvious escape route. An owner is not exempt from contributing even if the owner has waived or abandoned the right to use the common elements, is making a claim against the corporation, or is restricted by the declaration, by-laws or rules from using them. Never setting foot in the gym does not reduce your fee.

What happens if I stop paying?

The corporation gets a lien on your home. Under section 85(1), if an owner defaults in the obligation to contribute to the common expenses payable for the owner's unit, the corporation has a lien against the unit and its appurtenant common interest for the unpaid amount together with all interest owing and all reasonable legal costs. It attaches to the property rather than sitting on a credit file like an ordinary debt.

How do I check the fees before I buy?

Order the status certificate and read three lines in it. Section 76(1) requires the corporation to state the common expenses for the unit and the default, if any, in paying them; any increase in those expenses the board has declared since the date of the current year's budget, with the reason; and any assessment levied against the unit since that date to increase the contribution to the reserve fund, again with the reason.

Two practical points. The corporation has to give it within 10 days after receiving the request and the fee (s. 76(3)), and the charge is capped: O. Reg. 48/01 says the fee for providing a status certificate "shall not exceed $100, inclusive of all applicable taxes". Section 76(6) then makes the certificate binding on the corporation, as of the date it is given, for the information it contains. That is what a conditional period is for, and why the certificate goes to your lawyer rather than into a drawer. If you are earlier in the process, start with our guide to buying.

Do condo fees change how much I can borrow?

On an insured mortgage, yes. CMHC states that "If applicable, 50% of the condominium fees must be included in the GDS and TDS calculations", and that it "restricts debt service ratios to 39% (GDS) and 44% (TDS)". Half of a $700 monthly fee is $350 of housing cost counted before the mortgage payment lands, which moves the price you qualify at. Our affordability calculator takes the fee as an input for that reason.

What about a brand new building?

The first year's fee comes from a budget statement the declarant prepares, covering the one year period immediately following registration of the declaration and description (s. 72(6)). If that estimate comes in low, the Act puts the shortfall on the declarant: under section 75(2) the declarant shall pay the corporation the amount by which the total actual common expenses for the period covered by the budget statement exceed the total budgeted amount, with narrow exceptions.

That protection covers the budget statement period only. The increase owners notice in the second year is usually the board's first real budget rather than an error.