Condo fee jumps 86%
Owner fears loss in value, liquidity
Cory Garlock knows to expect condominium fees to rise at a new building after its first year.
But not by the staggering 86 per cent that Garlock and other owners at the Wellington, a 39-unit condominium in Westboro, are facing next month. In fact, as the fees are retroactive to the beginning of the condo’s fiscal year — June 1 — owners will also be playing catchup, meaning their monthly payments will be more than 86 per cent higher for the next nine months. For example, Garlock, whose fees are rising from $265 month to $492, will be paying about $522 through until May 2014. And who knows what he and other owners will be paying come June 2014 when the next budget takes effect? Hydro, natural gas and water rates — all part of a condominium’s operating expenses — don’t tend to fall.
Operating expenses for the current fiscal year have been set at $167,597 compared with the $166,953 spent on operations for 2012-13. The expenses had been pegged at $118,781 by builder Theberge Homes. As well, the reserve budget — used for major expenditures in common areas as the building ages — is rising by $77,399 for 201314. It was a mere $11,871 for 2012-13.
The total projected budget — operating and reserves — for June 2013 through May 2014 has risen to $244,996, compared with the $130,582 estimate for the first year and the actual expenditure of $178,589.
This is a triple whammy for Garlock, a financial planner, who bought the two-bedroom unit in the Wellington Street building, near Island Park Drive, as an investment, and rents the property. His condo fees almost doubled. He can hardly pass the cost on to his tenant as rent hikes in Ontario have been capped at 0.8 per cent for 2014. And he figures he has taken a “haircut of at least 10 per cent” on his $300,000-plus investment because the fee increase will make it that much harder to sell the unit.
“Who would want to buy ... paying $500 in condo fees when (those) at the building next door are under $300?” Condo fees are based on total square footage of the unit, and a parking spot and storage locker, if required.
The rent Garlock charges — $1,725 — falls about $100 short of what he pays monthly on his mortgage, in municipal taxes, and condo fees. Beginning next month, he will be paying in excess of $2,100 a month, or almost $400 more than he collects in rent.
“This will significantly impact me when it comes to selling,” says Garlock, who wants his story to serve as a warning to would-be condo buyers. He says he has talked to “100 people,” including realtors, since he found out about the fee increase. Among the things he has been told is that small developers tend to lowball condo fees more than the bigger builders to entice buyers. Either that or it’s incompetence, he says.
The fees, provided to prospective buyers even before construction begins, are often on the lower side, and, depending how low, can create big headaches for a condominium’s board of directors. Though a builder is responsible for operational cost overruns in the first year, it is the condo board that is charged with setting subsequent budgets and raising fees as warranted.
Board treasurer Bill Ketcheson writes in a report to owners “that the initial budget of $130,582 has proven to be woefully inadequate.”
The board is to discuss the fee hike with owners on Thursday night at its annual general meeting. No one from the board would comment, but Joey Theberge, owner of Theberge Homes, says the board should get a second opinion on the new budget numbers, particularly those related to hydro costs and the building’s reserve fund.
Theberge says budgets and condo fees are based on those of similar buildings. He says the property management company that he hired to oversee the Wellington in the first year “kind of set the budget for me.” The Wellington’s board of directors has since replaced that company, Capital Concierge, with Larlyn Property Management.
The annual contribution to the Wellington’s reserve fund, set at $77,399 for 201314 compared with $11,871 in 2012-13, represents an increase of 552 per cent. There are nominal two-per-cent increases in future years, and by 2042, owners will be contributing $134,753 in total or about $3,455 each.
‘I tell people not to buy new condos unless they have very deep pockets because this does happen.’
DAWN GOODRIDGE
Realtor
Ontario requires condominium boards to hire engineering consultants to look at future repair and replacement needs of the building’s common elements — i.e. roofing, windows, doors, electrical and mechanical systems, elevators and balconies. According to a report by board president Sam Gelman, consultants for the Wellington “developed a repair and replacement life cycle of each asset and then estimated the costs over a 30-year period.”
But Theberge says this year’s contribution to the reserve fund should be about $25,000 to $30,000, based on what owners in new condominiums of similar size and materials contribute to their reserve funds.
As well, says Theberge, the revised hydro budget for the common areas — basically lighting for hallways, stairwells, parking garage and power for the one elevator — tells him that “something in the building is eating the electricity” and needs to be corrected. The new hydro budget has been set at $46,000 after first year costs were $43,791, almost $30,000 more than the $14,690 that Theberge Homes used. Yet, Theberge believes his company’s numbers are closer to the real costs as the hydro bill covers only the common areas. There are several other operating expenses in which estimates were too low or not even included.
But if Theberge is right on a much lower reserve fund contribution and hydro budget, that could shave tens of thousands of dollars from the bottom line and result in a significantly lower hike.
It would still be a far cry from the $40 increase Garlock recalls paying for a townhouse condominium in east-end Ottawa after the first year and then another $15 or $20 in the next year. He says total condo fees for the property when he sold it to buy at the Wellington were less than $200.
Dawn Goodridge, one of the realtors Garlock contacted recently, says she was stunned when he told her his condo fee at the Wellington was originally set at $265. “I just about dropped the phone. I said: ‘Cory, really, did that not raise a flag at the time?’ ”
Goodridge figures an estimated condo fee of $400 to $500 would have been more in order for the property.
“I tell people not to buy new condos unless they have very deep pockets because this does happen. The condo fee is low in the first year or two, (and then) reality hits.”
Goodridge says that from her experience, the bigger builders “seem to have a better handle” on what condo fees should be and forecast accordingly. She says smaller builders tend to go low, perhaps because they don’t have as many projects under their belts.