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Just as the owner of a single-family home may not have the cash to replace the roof when it's required, a condo corporation may not have the cash for a large project that arises unexpectedly. Yes, all condominium corporations in Alberta are required to do a reserve-fund study every five years and are also required to save toward those major expenses, but it's not a perfect world. As every homeowner knows, expenses can exceed our available resources.
While the single-family homeowner will use his line of credit or perhaps a credit card for an $8,000 roofing bill, a condo corporation needing $8,000 per townhouse for, say, 50 homes won't find it that easy to borrow the needed $400,000. Yet some lenders are coming to the table, so check with your bank or credit union to see what's possible. There are also a few condo-specific lenders emerging in Canada, such as Strata Capital Corp. (www.StrataCapital.ca) and Maxium Condo Finance Group (www.Maxium.net).
Borrowing to pay for a capital project, of course, is only one option, and isn't necessarily the first choice. Borrowing creates a debt that must be repaid, meaning monthly condominium contributions have to rise. ‘Better to have money on hand or to use some of the condo corporation's reserve-fund money and some borrowed or newly-raised money, such as by a special assessment on all owners. Yet some owners may soon be selling and moving, and begrudge paying for repairs or improvements that will be enjoyed by the future owners.
We can lay out a hierarchy of questions to decide: 1/ Does the job need to be done, and if so can it be phased or can it be done less expensively? 2/ What portion of the project can we afford to pay for from the Reserve Fund, and what is the shortfall? 3/ Should the shortfall money be borrowed, raised by increased condo contributions over a period of time, or be raised by a special assessment on all owners? 4/ What is the reasonable limit on our condo development's monthly contributions ("fees") so that our owners can still sell easily? 5/ If that condo-fee limit would be exceeded by repaying a debt or by paying off a contractor's bill, perhaps we should split the unfunded portion of the expense between borrowing and a special assessment. 6/ If we impose a special assessment, how much time do we give all owners to pay it?
In many and perhaps most cases it will be better to swallow the bitter pill and impose a special assessment to raise the one-time funds to catch up on major capital work, be that a new roof, new elevator systems, or improved common areas such as hallways and lobbies. Many people, of course, will need as much notice as possible for an expense of thousands of dollars, so Boards should do everything they can to give time to pay. Half a year's notice seems to be a reasonable minimum notice to condo homeowners who can then consult their lenders, the bank of Mom and Dad, or juggle their own resources to cover the bill.
My conclusion is that condo corporations should borrow if necessary, but not necessarily borrow. Condo Boards should not use amortization to avoid a special assessment that will see the capital work done and monthly condo contributions held to a reasonable level. Whether to borrow at all, how much to special assess, or what blend of these to undertake are questions that a condo Board will sort out on behalf of all the condo homeowners.
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