Condo fees explained - an insider’s guide

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The condominium lifestyle is more popular than ever, with people across North America increasingly looking for an affordable way to upgrade their quality of life. Condos provide a number of benefits over single detached dwellings, with people able to access more affordable homes, more central locations, and more amenities than they could afford otherwise. Depending on the building, condos may also provide people with greater access to a community of like minded souls.

If you're thinking about purchasing a condo, it's important to be aware of the ownership arrangement in place and how it will impact your lifestyle and monthly budget. First and foremost, you need to understand that a condo is a form of ownership rather than a type of building. While most condos in North America are apartments in inner-city locations, any type of dwelling can fall under the same ownership structure.

When you buy a house, you own the interior and exterior of the building along with the land itself. When you purchase a condo, you take ownership of the interior of the unit but do not own the building exterior or land. When you buy a condo, you also have a shared responsibility to look after the common areas and assets of the community. This includes shared spaces such as hallways and amenities such as gyms and swimming pools.

What are condo fees?

All condos are defined by the existence of common areas and assets, with all condo owners required to maintain these areas through the provision of regular monthly fees. Known as condo fees or maintenance fees, this represents a regular and ongoing expense for condo owners. Before purchasing a condo or even creating a short list, it's important to educate yourself about fee amounts and structures.

It's not enough to compare costs alone, you also need to be aware of what condo fees cover and how this is likely to affect your lifestyle. For example, while condo fees may seem expensive, paying fees does offer a number of key practical advantages. It's always important to be aware of the opportunity costs associated with your decision, with single detached homes also requiring regular maintenance and normally demanding a lot more of your time.

While the condo lifestyle is not ideal for everyone, paying regular monthly fees can be less time consuming and easier to manage than forking out large sums periodically when it comes to property maintenance. Depending on the building, condo fees may also cover the management of amenities and provision of utilities. In the United States, the organization that manages condo fees is known as the Homeowner Association (HOA). In Canada, this organization is called the Condo Board.

What's included in condo fees?

When considering a mortgage for a condo, it's important to be aware of how the monthly fees and structured and what they account for. While they're called maintenance fees for a reason, condo fees may also cover things like amenities, staff wages, contingencies, and utilities. While all buildings require regular maintenance, large differences in fees are often related to amenities and other outgoing costs.  

Along with maintenance, condo fees are designed to cover the management, upkeep, and maintenance of all common areas and building assets. For example, the existence of gyms or tennis courts is likely to raise your monthly fees, as is the existence of staff members to maintain these facilities. In addition, part of your monthly fee will be used to create a contingency fund in the case of emergencies.   

Who receives condo fees?

Anyone buying a condo automatically becomes a member of a homeowners association. In the United States this organization is called the HOA, and in Canada it's known as the Condo Board. Along with being responsible for monthly fees, individual apartment owners are also subject to the rules and regulations of this association. Along with condo apartments, these associations also cover many townhouse complexes and single-family homes in planned developments.

In the United States, HOAs are treated as corporations for tax purposes. While many associations are set up as non-profit organizations, only some are recognized this way by the IRS. There are a number of reasons for this, with non-profit status both very expensive and difficult to obtain. While many HOAs have been designed to funnel funds back into the community, very few qualify as tax exempt and the majority have to pay taxes on all non-exempt income.

In Canada, the situation is slightly different, with a condominium corporation considered by default to be a non-profit organization that's exempt from paying taxes on its earnings. However, the Board will still need to pay taxes on any income related to activities that don't relate to building administration, and all Condo Boards still need to file a corporate income tax return each year. Non-profit status could be challenged by the Canada Revenue Agency at any time.

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Condo amenities

Condo fees are allocated to individual apartment owners as a percentage share of the costs needed to run the building as a whole. While regular building maintenance is a significant part of these costs, the number and type of amenities in the building also have a big effect on the final bill. Along with the central location of many condo buildings, having access to amenities is one of the main attractions of the condo lifestyle.

Typical condo amenities include pools, gyms, tennis courts, entertainment areas, meeting rooms, basketball courts or hoops, car wash facilities, bike share programs, lockers, car charging stations, car parks, beauty salons, outdoor kitchens, common WiFi areas, club rooms, laundry facilities, and dog exercise and wash stations.

While very few buildings will have all of these examples, many condo units have been specifically designed to cater to a specific market demographic.

Amenities and lifestyle considerations

When you're creating a short list or choosing between condos, it's important to be aware of the amenities available and how they may impact your quality of life. As one of the key benefits of condo living, having access to the right amenities can make a real difference to how you live on a daily basis.

For example, young people are likely to be attracted to buildings with fitness and social facilities, with older residents possibly wanting club rooms or bowling greens. One of the key benefits of condo living is that you can access multiple amenities that you couldn't afford through other means.  

While you should always compare condos based on their amenities, it's important to note that nothing comes for free. Generally speaking, the greater access you have to amenities, the higher your monthly fees will be. Swimming pools and tennis courts don't look after themselves, with amenities requiring regular cleaning, repair, and possibly insurance. When outside staff are needed to perform this work, your condo fees are likely to rise significantly.

Repair and maintenance

Other than location and amenities, lack of maintenance is one of the key reasons why people are attracted to buying a condo apartment. While paying monthly fees after you've purchased property can be hard to stomach for some people, you can save yourself a lot of time and stress by going down this road.

Condo fees are designed to cover all maintenance to the exterior of the building, along with all common areas and assets. While you still need to look after your own unit, there are no lawns to mow, no roofs to patch, and no foundations to fix. Along with less work, monthly fees can also be much easier to budget for and manage than irregular and often surprise repair bills.    

Rights and obligations in the United States

In the United States, maintenance and repair responsibilities depend on whether an area is classified as a common area, exclusive use common area, or separate interest area (the unit itself). Civil Code Section 4775 establishes the responsibilities of the HOA to look after all common areas unless they are caused by the acts of a member, member’s guest, or member's tenant.

Exclusive use common areas include areas used by a selection of residents, including things like patios, balconies, and porches. While the responsibility for these areas can be complex and ambiguous, individual unit owners are generally responsible for maintenance and repair. As you would expect, individual condo owners are completely responsible for their own unit.

Rights and obligations in Canada

While the responsibility for condo repair can be a complex issue in Canada, the current Condominium Act, 1998 requires that every Condo Board repair both the common elements and units after damage, whatever the cause. This obligation is altered in most corporation’s declarations, however, with individual owners normally responsible for repairing their own unit when the damage is the result of the unit owner.

In terms of insurance, condominium building insurance policies typically cover the common areas only. Under the current Act, each individual owner is responsible for any damage they cause to other units and common building elements. While most natural disasters are listed and therefore insured under the current Condominium Act, flood damage caused by a hurricane or heavy rainfall is not specifically listed as a major peril.

Average condo fees

Condo fees vary considerably in the United States depending on the location of the building, the exclusivity of the building, the size of the apartment, the size of the building, the number and type of amenities, and the individual elements included in the fee structure.

Before signing a contract for a new condo, it's crucial to compare buildings and apartments of a similar type and in a similar location. Like all real estate purchases, where you want to live will have a huge impact on the final price.

Average condo fees in the United States

Condo fees vary considerably in the United States, from as little as $50 a month to as much as $1,000 a month for standard apartments. In extreme cases, luxury condos can cost as much as $4000 per month. According to research by Trulia, the average national housing association fee was $331 per month in 2017.

HOA fees have out-priced both inflation and home prices over the last few years, rising by 32.4 percent between 2005 and 2015 compared to 15.1 percent for the medium US home.

HOA fees are higher in older buildings due to higher maintenance costs, and also higher in smaller buildings due to reduced economies of scale.

For example, buildings constructed after 2004 were found to be $90 per month cheaper on average compared to those built between 1960 and 1969. HOA fees for buildings with 20 to 49 units were $160 a month higher than buildings with 50+ units.

This figure also varies widely based on location. For example, New York had the highest average fees in the nation at $571 per month, followed by Long Island at $498, San Francisco at $463, Philadelphia at $449, and Miami at $415 per month. The highest comparative HOA fees were found in Tampa, where fees represented 47.9 percent of monthly housing costs, followed by Houston at 42.6 percent, and Fort Lauderdale at 42 percent of housing costs.

Average Condo fees in Canada

Condo fees also vary widely across Canada, with some cities and provinces having much higher fees than others. According to a recent report from Condos.ca, maintenance fees in the Greater Toronto Area (GTA) averaged 65 cents per square foot in 2017. From a practical perspective, a 1-bed unit will cost C$387 per month, with a 2-bed costing C$628, and a 3-bed costing C$881 per month. Condo fees in Toronto rose by just 2.5 percent in 2017, which is less than the 4 percent growth recorded in 2015 and 2016.

In other parts of the country, monthly maintenance fees are generally lower. Fees in Vancouver, Calgary and Montreal tend to be slightly lower than the Toronto figures, with fees generally much lower in rural parts of Canada. For example, average condo fees in Vancouver are around C$220-$320 a month for an 800 sq. ft. apartment. Whenever you're comparing fees in a particular location, it's important to double check their scope and add on any additional costs that you may be responsible for.  

Can condo fees be negotiated?

Condo fees are a necessary part of condo living, and they can't normally be negotiated. HOA fees are governed directly by the Condominium Act in your state of jurisdiction, which means they're pretty much set in stone .

However, while you can't negotiate fees directly with the association itself, you may be able to negotiate fees for a set time period from the previous owner when you purchase a condo. Even though condo fees vary considerable between buildings, they are designed to ensure that all unit owners are paying an equal share.

Can condo fees increase and why?

Like all other costs of living, condo fees can increase and often do. When comparing condos, it's important to take this into consideration by researching historic and predicted fee increases. Condo fees are often increased when new amenities are added, large repairs are needed, or the number of units in the building changes for some reason.

While all associations will have a contingency fund to cover emergencies, natural disasters and other unforeseen events can challenge any budget. Condo fees are assessed, and often rise, on an annual basis. Fees are decided by the condo board once the current operating expenses have been taken care of and the budget has been analyzed for the coming year.

Lots of things need to be taken into consideration during this process, with the board needing to allocate money for the contingency fund along with regular maintenance programs. Along with repairs and the addition of new amenities, fees can also increase as a result of rising wages and building materials.  

What happens if you don't pay condo fees?

Condo fees are mandatory, non-negotiable, and need to be paid to avoid legal problems. Depending on your jurisdiction, condo boards do have the right to demand and recover payments when fees are not up-to-date. If your account is not current, a demand notice can be sent to remind you of outstanding fees, set a payment due date, and advise you of any interest or penalties that may incur. Depending on the board, it may be possible to set up a repayment plan during this early stage of negotiations.

If the fees are still unpaid after the new due date, the condo association is likely to restrict your privileges and common property access. Amenities such as pools and gyms may be unavailable, with most facilities requiring a passcode for access. If you rent out your condo to a third-party, they can also have their privileges revoked. Condo associations also have the right to start legal proceedings in some situations, with late fees and legal costs often the end result.

In the worst case scenario, the HOA can initiate a foreclosure on the property in question, with non-judicial and judicial foreclosures both possible depending on the jurisdiction. In some US states, a foreclosure can only be started when the money owing is past a certain amount. For example, in California you need to owe $1,800 or more or be over 12 months late before this process can start. In most US states, however, there are no such restrictions, and a foreclosure can be initiated over just a few hundred dollars.   

The situation is similar in Canada, with a demand notice typically followed by a lien registered against the property in question after three months of non-payment. More drastic measures are possible if payment is not made after the lien is registered, including foreclosure where the board obtains a power of sale over the property. While this is very rare and unlikely to occur, condo boards can also recover unpaid fees by garnishing rents from tenants and taking additional legal action.  

What happens if your neighbors refuse to pay their fees?

When you start living in a condo, you become part of a larger community. The actions of fellow condo residents can also affect your lifestyle, especially if they refuse to pay their monthly condo fees. While most people are happy to pay their fees and this situation is rare, even a few late payments can have a drastic effect on the working budget of the building, especially in smaller communities.

The bad news, however, is there's nothing you can really do. In most cases, unless you're part of the condo board, you will be unable to find out who is late and how much is due. While the HOA might disclose the total amount of dues in arrears, they are unlikely to name names for privacy and security reasons.

Individual actions against delinquent residents can be considered harassment, with all demands and legal notifications needing to come through the condo board itself. If the board is unwilling to take such actions, it may be possible to start a lawsuit against the board for not performing its obligations.

Is the condo lifestyle worth it?

Before you decide to buy a condo, it's important to weigh up all of the benefits and potential issues associated with the condo lifestyle. While monthly maintenance fees can be a burden, it's important to consider all of the advantages available to you as a condo owner. First and foremost, buying a condo is often much more affordable than purchasing a detached dwelling. This makes it easier to get onto the property ladder and easier to access finance from banks and other lenders.

Secondly, living in a condo offers numerous lifestyle advantages, including greater access to amenities and a more central location. Your monthly condo fees are not just used to clean the hallways and wash the windows, they're also used to provide fun and exciting amenities such as pools, gyms, and outdoor entertainment areas. This can have a huge effect on your lifestyle and give you the ability to access amenities that you couldn't afford alone.

Along with greater access to amenities, living in a condo also allows you to live in a more central location than you could otherwise afford. While not everyone wants to live in the inner-city, and there are many condo buildings in the suburbs, this is one of the key attractions of the condo lifestyle. Living closer to transportation hubs, entertainment venues, and work opportunities can help to improve your quality of life and give you a greater sense of connection with the rest of the world.

Last but certainly not least, living in a condo requires a lot less maintenance than living in a detached dwelling. Condo fees are called maintenance fees for a very good reason, with the condo board responsible for looking after the building exterior and common areas of the building. While you still have to look after your own unit, most expensive repairs are taken care of. This can help to free up a lot of your time and have a huge positive effect on your life.

All of these factors should be taken into consideration when you're deciding if the condo lifestyle is right for you. Rather than seeing condo fees as an expensive burden in addition to your mortgage payments, many people see them as a way to secure and manage a desirable lifestyle. While living with association rules, regulations, and monthly fees is certainly not for everyone, there's a very good reason why condominiums are a growing market segment across North America.