What are condo fees, how are they calculated, and what do they cover? Are utilities included in condo fees? Are there townhouses with condo fees as well? Do condo owners pay property tax at all, within their condo fees, or separately?
As condos increasingly become the home of choice for many Canadian homebuyers – particularly first-timers, but increasingly move-up buyers – these questions are on the minds of many who are thinking about buying but may not fully understand how condo fees work.
Homeowners are drawn to condo living for a variety of reasons. It’s a good option for people who don’t want to age out in their current home and for empty-nesters ready to downsize. There is less maintenance and repair responsibility and often added security, with access controlled by 24-hour concierge services at the building’s entrance areas, separate security personnel and in-unit intercoms, alarm systems and video monitoring. Amenities such as an on-site fitness centre, swimming pool, or rooftop garden make condos attractive, and in addition to being part of a luxury lifestyle, they double as community-building spaces.
Affordability is another big factor behind the relatively recent shift to condo living, but it’s certainly not the only appeal. Other benefits include easy access to urban conveniences, including neighbourhood stores, shopping centres, bars and restaurants, and proximity to public transit. Condos also allow their owners to travel more and live a lock-and-leave lifestyle.
Condo fees are how condo amenities are paid for, and the cost is a separate payment from each resident’s mortgage. Luckily, condo fees tend to be fairly predictable, but let’s take a closer look at what they involve.
What are Condo Fees, How are They Calculated, and What Do They Cover?
What are Condo Fees?
Every condo owner pays a regular, non-negotiable condo fee. This fee is calculated based on your share of the condo building – the larger your apartment-style or condo townhouse unit, the greater your fee. This fee is adjusted annually based on the condo’s operating budget. Condo fees are mandatory for divided co-ownership but NOT for undivided co-ownership.
What’s the difference between divided co-ownership and undivided co-ownership?
Divided co-ownership is what most prospective condo buyers are likely familiar with. In divided co-ownership, the building is divided into private and common areas, and what you’re buying is the private portion, comprised of your condo unit plus a private parking space and possibly a private storage space as well, and a commonly shared portion of the building that includes corridors, elevators, the swimming pool, gym, etc. You are the sole owner of the private areas and, along with other residents, a co-owner of the common areas. As the owner of the private portion, you also have the right to sell your condo without the permission of the other divided co-owners. A down payment of at least five per cent of the condo’s purchase price is necessary to acquire a divided co-ownership unit. A group of co-owners managed by a board of directors meets regularly and manages the building.
In undivided co-ownership, the entire building is considered one land unit, and you’ll need to pay a minimum 20 per cent down payment in order to acquire a piece of it. Undivided co-ownership properties may still require a monthly or annual fee to build a reserve fund for building maintenance and repairs, but this type of ownership usually allows for more flexible oversight and administration.
Fees can range from $50-$1,000 per month depending on a variety of factors, including:
- The size and age of the property
- Whether the building is a high-rise or not
- How many buildings are in a particular complex
- The amenities covered
Each condo owner is responsible for paying their condo fee in addition to other payments, such as their mortgage, property taxes, and homeowner’s insurance.
You should be wary of condo fees that are very low since this can be a sign of underestimated maintenance costs, unfinished maintenance, or an underfunded reserve fund.
What do Condo Fees Cover?
Condo fees are divided into three main categories: utilities, common areas and the reserve fund.
A chunk of your condo fee goes to utilities such as water, hydro, gas and sometimes heat – but this isn’t always the case. Most new condominiums are now built with individual heat pumps that are controlled and paid for by individual owners. Condo fees also pay for snow and garbage removal, cleaning, minor repairs to common areas, exterior window washing, and the like.
We’ve already mentioned that condo ownership means less maintenance on your to-do list. But somebody’s gotta do it, right? Your condo fees cover that expense as well. This goes not only for the small stuff like lawn and garden care but also for major maintenance work such as resurfacing the asphalt in the condo’s underground parking area or redoing a leaky green roof. In both cases, these costs will come out of the reserve fund.
And remember those awesome amenities that sold you on the condo in the first place? You have to contribute to their upkeep as well. The more amenities your condo has, the higher your condo fees will be. Think pool, gym, hobby rooms, sports courts, in-house theatre, guest suite, indoor and outdoor common areas and rooftop barbecue areas. NOTE: You’ll still pay for all your condo’s amenities, even if you only use them sporadically.
Lastly, condo fees cover administration costs for managing the condominium. Some buildings are managed by private companies that are paid for their services. Insurance is also necessary to cover the building, and everything in it, and your condo fees cover this as well.
In short, if there is something that every resident uses that you are not paying out of your pocket for, it is probably being paid with your condo fees.
What is a Reserve Fund?
A portion of your condo fee is set aside in a reserve fund, which every condo board must maintain as a savings account for big-ticket items that inevitably arise. A roof replacement can cost upwards of half a million dollars, so this fund is essential.
The reserve fund is like a savings account for all the condo owners that the board of directors manages. These reserve funds can be used for both emergency and planned repairs; however, they cannot be used for cosmetic changes or new construction.
Reserve funds are kept at a financial institution like a bank, credit union, loan or trust corporation in an account separate from the condominium’s operating funds.
In a case where the reserve fund doesn’t quite cover an expensive repair, each condo owner will be required to pitch in an additional and proportional amount to cover the cost. This is known as a Special Assessment.
Do Condo Owners Pay Property Tax?
Finally, we get to the question which may have brought you here in the first place. And the answer is yes; condo owners in Canada must pay property taxes. These taxes are separate from your condo fees, set by the local government, and levied as a set percentage of the assessed value of your condo. For example, in Toronto, the rate is 0.72% of your condo’s assessed value, while the rate in Vancouver is just 0.28%. Property taxes help fund local services and infrastructure, such as road construction and upkeep, police services, fire stations, schools, garbage collection, snow removal, and much more. Depending on the municipality, property tax payments can be made on an annual, semi-annual or quarterly basis.
Make Sure You Know Your Monthly Condo Fees Before You Buy
If you’re considering condo ownership, make sure you add applicable condo fees into your budget and leave a buffer in case your fees increase, which tends to happen as condos age. Any increases are at the discretion of the condo board.
Before you make an offer on a condo, you’ll also want to get a copy of the condo’s Status Certificate, which contains important details about the condo’s financial well-being. Review it and make sure you understand it. The document will include things like the condo’s annual budget, any pending legal matters, information about the reserve fund, current maintenance fees, and whether any condo fee increases are planned in the near future.
The fee for the Status Certificate may vary slightly by province, but you can expect to pay about $100. The information contained in it? Potentially worth its’ weight in gold in verifying your investment.
