How Are Condo Fees Calculated?
Compared to mortgage payments, condo fees (legally referred to as condominium contributions in Alberta) are more complex, more variable and can be subject to change more readily. Once your mortgage amount has been established, the term, payment schedule and interest rate are the key variables that will alter what the monthly payments will be. Condo fees have many more elements in play and not all of them are in full control of the condominium corporation. Let’s peel back some of the layers and review how fees are calculated and what factors are involved in determining how variances can occur between similar buildings.
The Basics
Every condominium corporation is divided into 10,000 Unit Factors (UF) regardless of their size or type. The UF distribution is calculated by the developer with the creation of the condominium plan, the original document that registers the condominium. This allocation represents each owner’s share of the common expenses of the condominium. There is no prescribed mathematical formula for determining each unit’s UF, however they are typically based on square footage. Other factors such as preferential location within a complex or building can result in more UF for one unit over another of similar size.
Every year the Board is responsible to review their common expenses and create a budget for the next fiscal year. Once the budget is approved, each owner is allocated a portion of the expenses based on their unit factor allocation unless the bylaws specify another method of calculation. Fees are typically calculated annually and paid monthly. For clarity let’s use this example:
Pineview Meadows has 40 units and their budgeted expenses for the year are $240,000.
$240,000/10,000 UF = $24.00/UF/year.
30 Units have 225 UF each ( totalling 6750 UF) & 10 Units have 325 UF each (totalling 3250 UF). 6750 + 3250 = 10,000 UF
30 Units – $24.00/UF/year x 225 UF = $5,400/12 months = $450/month.
10 Units – $24.00/UF/year x 325 UF = $7,800/12 months = $650/month.
What’s Included In My Condo Fees?
The simple answer to that question is “depends”. Each condominium creates their own annual budget and consequently derives unique condo fees based on the features of the complex and the needs of the owners.For example a townhouse style condominium may have lower fees than an apartment style because they pay for their own utilities and have less common property to maintain. A luxury highrise may have a full-time concierge on site for the benefit of the residents. Differences can also occur depending upon the level of service expectation. Everything from the standard established for common area snow removal, to management services vs. a self managed board, to how often the parkade is swept or windows are cleaned, all need to be considered. Using a common analogy, do we relate our complex closer to a reliable compact car or a tricked out SUV?
Condo fees, much like taxes, are a moving target and cannot be guaranteed to remain the same even on an annual basis. There is no current legislation that restricts the amount or percentage of an increase from year to year, although owners have the right to replace a Board should they have reasonable expectations that their finances are being mismanaged.
So let’s take a look at some of the Major Components that exist in the majority of condominium budgets:
- Reserve Fund Contributions – As laid out in the Reserve Fund Report and Plan approved by the Board, a significant portion of your fees will be allocated to build up the Reserve Fund, which is used for the major repair or replacement of the capital assets of the corporation (e.g. – roof, windows, parking lot, etc).
- Insurance – In light of the current trend of both an increasing frequency and cost of insurable claims, this line item is becoming a larger portion of the budget even if a corporation has a clean track record.
- Staffing – Can include a services contract with a management company and/or on-site maintenance or security staff.
- Utilities – More so with apartment and high rise style buildings and cost dependent on what, if any, utilities are sub-metered with invoicing going directly to each unit’s owner.
- Maintenance – Whether it’s snow removal and landscape maintenance, preventative maintenance contracts for mechanical systems, janitorial, window cleaning, etc, the corporation has a duty to repair and maintain its property, so things can add up in a hurry.
Debunking Common Myths
The lower the condo fees the better the complex is run – In fact in the majority of cases an argument can easily be made that lower fees often signals that regular maintenance is being deferred and bigger expenses are inevitable. Savvy prospective purchasers are now more concerned with the Reserve Fund balance and the perceived value of the monthly condo fees rather than the actual fee itself.
Owners have no control when it comes to setting condo fees – It is true that unless it is outlined in the bylaws, Boards do not need owner approval to approve the annual budget. Owners, however, do have the right to not only reasonably question any aspect of the budget but they also have the opportunity to elect a new Board should they feel the current one is mismanaging the corporations finances by either overspending or underspending accordingly.
Developers set unrealistic budgets to keep condo fees down and sell their units – As of January 1, 2018, the legislation was strengthened to hold any developer accountable when actual expenses in the initial fiscal year after the turnover meeting to the owner board are more than 15% higher than the developer’s proposed budget. Some restrictions still apply but it’s definitely a step in the right direction.
With the upcoming changes in the legislation, corporations will now be required to provide owners a copy of the annual budget at least 30 days in advance of the fiscal year. In addition, owners are to receive a copy of the annual financial statements prior to the Annual General Meeting. Reviewing both those documents will help owners better understand how their fees are being utilized and the overall financial health of the condominium corporation.