Condo owners turn to loans from banks to pay for repairs

Allow syndicates to spread costs over years and avoid issuing special charges

When Cours d’Outremont condo owners decided to buy new patio doors, they made the unusual decision of turning to the banks instead of their reserve fund.

The 47 co-owners, who had already been recently hit with about $30,000 each in unexpected repair fees, turned to one of the increasing number of banks offering loans to condo syndicates — a small field that, at least for some financial institutions, has emerged as the fastestgrowing area of commercial banking.

Instead of charging another large special assessment, which would have to be paid right away, co-owners will be asked to vote next month on whether to spread out their payments over five years through a bank loan.

“This need for repairs is happening at condo buildings all over Montreal, so we need to find alternatives,” Christine Veilleux, president of the condo syndicate at the Outremont building, said.

“I think it’s a good market for the banks to go after.”

Indeed, growing maintenance and repair costs in condo buildings have emerged as a major problem for the rapidly growingnumberof co-owners in Canada’s largest cities.

Incidents of water damage are increasing, condo syndicates or corporations are failing to set aside adequate amounts in their reserve funds and, as a recent Gazette series revealed, insurance companies are becoming increasingly restrictive in what they’re willing to cover.

Most major financial, institutions, including Royal Bank of Canada, TD Canada Trust and National Bank of Canada, offer commercial loans to condo syndicates across the country, but the number of transactions is nominal.

While small for BMO as well, a Bank of Montreal executive said loans to condo syndicates or corporations have now emerged as the bank’s fastest-growing commercial activity. Most of the loans are being issued to strata (condo) corporations in B.C., followed by condo syndicates in Quebec, said Tony Ngo, national manager of industry programs, commercial banking, for Bank of Montreal.

“We see one of the biggest opportunities in commercial lending in this area,” Ngo said. “There is a lot of pentup demand.”

Condo syndicates usually ask for a loan “to spread out the cost ... due to a shortfall in the reserve funds,” Ngo said. “We give them enough time to build up the reserve, so they’re not always in a cycle of debt.”

He said there appears to be less demand in Ontario, where the law requires condo corporations to draw up building maintenance plans, an obligation recently introduced in B.C. Maintenance plans aren’t required in Quebec, which is in the process of overhauling its condo laws.

Ngo would not disclose the interest rates on loans to condo syndicates or corporations, but syndicates, property managers and bankers say they tend to range from six to nine per cent. The amortization period for these loans usually ranges from five to 10 years, depending on the financial institution and on the asset.

Michael Chetboun, copartner at property managers Gestion Immobilier Sequoia, said a reason there are such few cases of loans to condo syndicates is because of strict lending practices. The banks make these loans using condo fees, or a unit — usually the caretaker’s apartment, which is owned by the syndicate — as collateral.

“The banks don’t just want to lend to any condo syndicate, they are very, very selective,” said Chetboun, whose company manages the Cours d’Outremont. “The syndicate is non-profit, but it’s a company like any other. I’ve seen cases of syndicates that have gone bankrupt and then open again under a different name.

“It’s the first time that we’ve seen it (a condo syndicate get offered a loan), but it’s not the first time that coowners have asked for this.”

Chetboun said it’s better for some condo syndicates to get a loan because it gives “co-owners some breathing room,” especially when they’ve already been hit with extra fees in the past.

The drawback of taking a loan is that it means coowners will have to levy special assessments for several years, which are harder to manage.

“It’s like a second condo fee to collect, it means more paperwork.”

alampert@ montrealgazette.com Twitter: @RealDealMtl