Real Estate 101

How can I assess whether or not my strata fees are too low?

There is such a thing as finding too costly of strata and condo fees — but is there a minimum fee that could negatively affect your property investment or home?
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As a home buyer, you would probably appreciate paying less for rent and bills. Therefore, when a buyer is in the market for a condominium, he or she might be pleasantly surprised to find one with low strata fees. Typically, strata fees are a monthly charge paid by a condominium owner to pay for any necessary building development expenses. Your strata fees will be assessed based on the square footage of your unit and the entitlement of your lot.

Having low strata fees could be beneficial for a buyer or investor if the prices are low because the strata company doesn’t cost much to run, or because the building is new and there aren’t many current maintenance requirements. However, it’s also important to note that low strata fees could be an indicator of poor management or lack of foresight. The surprising savings may mislead you into thinking that the property is in better shape than it really is.

How low is too low when it comes to strata fees?

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Buildings are unique and have specific needs, just like people. You could have two buildings made using the same blueprints and constructed by the same contractors, yet both buildings will have differences between them. The location, inhabitants, maintenance and other factors contribute to those differences.

“The short answer is that there is no specific place to look up whether fees for strata are sufficient,” says Veronica Franco, chair of the strata group at Clark Wilson law firm.

For example, since a significant maintenance project is far more expensive in the 60-unit condo complex of a high rise building, this development will need to have a larger reserve fund than a small wooden frame building. Therefore, you can expect its strata fees to be higher. Any structure older than 20 years tends to have more maintenance issues than a new one, so you should also expect to have a higher strata fee on those units as well.

It helps to remember that strata fees serve an essential purpose: to create a contingency reserve fund in case the building needs major repairs. We can rely on specific guidelines to come up with a good benchmark for the total of the fund. Toronto’s condominium fees range on average from 0.50 cents to $1.00 per square foot. This means that if you were to move into a new building with condo fees that are $750 per month and your unit, in particular, is 840 square feet; the cost would total to $0.89 per square foot.

B.C. regulates strata fee requirements, but not all provinces do this

In British Columbia, strata councils are mandated by law to put aside at least 25% of their yearly operating budget for a contingency reserve fund, though most strata companies set aside much more than that. A good rule of thumb is to hold three to four times the yearly operating budget, which is what most strata companies do in Ontario. As a buyer in British Columbia, you can have access to a Property Disclosure Statement before you buy a condo. Strata councils are required to prepare a Property Disclosure Statement to buyers so that they can be aware of issues regarding the property. It can be an invaluable tool to let you know exactly what you’re getting.

What happens if the reserve fund is not large enough?

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Stonemeadow Consulting

Much like every property, repairs will be made eventually, and the money will have to come from somewhere. If the building emergency or reserve fund is not large enough to cover those repairs, the strata council has a couple of options. One tactic is to increase monthly strata fees to cover costs plus deficits considerably. Another tactic is to assign special assessment fees to the condo owners. Special assessment fees are single, mandatory, time-sensitive and non-negotiable payments. These fees often reach tens of thousands of dollars. As a condo owner, a special assessment is the last thing you would want, because it could come suddenly, and significantly set you back financially.

Using your best judgement is essential. Determine whether the building is in excellent condition, assess the value of your property and always keep an emergency fund in case of a special assessment fee or increase in strata fees. Speak with the strata council to stay in the loop regarding upcoming maintenance repairs and happenings within the building.

Misael Lizarraga
Misael Lizarraga

Misael started as an English teacher in Mazatlan, Mexico but his passion was in real estate. Now, he works with a handful of clients reporting on real estate news from across the world under his primary business: realestateguy.com