Condominium Buyers Guide
the Condominium Property Act (1993)
Converting rentals to condominium
Taxes, Insurance and Reseve funds
The government of Saskatchewan has approved a number of amendments to The Condominium Property Act, 2003 Regulations that will affect condo owners. One of the key elements of the amendments is the requirement for each condominium corporation (“Corporation”) in the province to conduct a Reserve Fund Study (“Study”) prior to February 1, 2008 and subsequently at least every ten years. This is a minimum requirement and in most cases it may be prudent for Corporations to update the Study more frequently than every ten years.
The adequacy of the reserve funds held by a Corporation is an emerging issue in the industry. As part of a buyer’s due diligence in the purchase of a condominium, the issue of whether the Corporation has adequate reserves to replace those components which may require major repairs or replacement that would not be covered through normal maintenance is an important issue. Many of the condominiums being sold today have components that may have little economic life remaining. When the replacement of significant components of the property are required and there are insufficient reserves in place, the cost of the improvements are spread among the current unit holders. Many unit holders may not be able to fund their proportionate share if the payment is required all at once.
The buyer, at the time of reviewing the documentation provided pursuant to making an offer, needs to consider whether the Corporation has adequate reserves. Who does the buyer approach for assistance in determining this issue? Unless a person has detailed knowledge with respect to the physical condition of the common property components of the Corporation, it may be difficult to determine adequate reserve levels.
Condominium corporations are required to maintain adequate reserves; however, adequate reserves are not defined in legislation and as a result, the amount of the reserves maintained in many Corporations has become an arbitrary number. The purpose of the Study is to assist the Corporation Board of Directors in determining what adequate reserve levels need to be for the Corporation. Corporations must take into account the reserve fund study when determining the amount that should be in the reserve fund. A copy of the Study must be appended to the annual report of the Corporation.
The Study is to be conducted by a qualified individual and would include but not be limited to, identification of each component in the physical analysis of the Condominium property for which major repairs or replacement costs are anticipated which would not be covered by the annual operating or maintenance budget. The study would also include the present condition of the common property components and a financial analysis respecting the cost of repairs and recommendations for future funding requirements of the Reserve Fund. There is a standardized format which summarizes the results of the Study. If the Study is conducted by a person who was not independent of the Condominium Corporation then a disclosure must be made to the owners and prospective buyers. There are two exemptions of the requirement to conduct a Study and they are for condominiums with 12 or fewer units and for condominium conversions where none of the units are being sold.
JEFF MARTIN jmartin@sutton.com 306 536 1955