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Condo Renovating Essentials
by The Institute of Chartered Accountants of
Ontario
Thinking of renovating your condo? As owners and
condo boards often find out, this isn’t as easy as it sounds.
“Condominium owners should not carry out any significant renovations
without getting permission from the condo board,” says Chartered
Accountant Peter Harris, Partner, Harris Chong & Crewe LLP in
Toronto. “Without permission, the ramifications are serious, and the
board has legal authority to ask the owner to return the condo to
its original state.”
Why do you need permission to renovate your own property?
According to Harris, this is part and parcel of condominium living –
so understand your obligations as a co-owner.
“Before owners even think of renovating, they should check the
documents that are part of the Condominium Act and the condominium’s
bylaws and rules. These documents spell out the specific
responsibilities of owners as well as the condominium corporation.
Renovations are governed by Section 98 of the 2001 Condominium Act.
“Significant structural renovations make condo boards nervous
because someone with the most innocent intent may unsuspectingly
cause damage to one of the common elements – including the wiring,
plumbing or windows – which are not owned by individual owners.
“Even if a renovation seems minor, you must get permission if it is
more than cosmetic. Your application must be in writing, and the
board may deny permission based on the bylaws or rules. For example,
a request to install a pond in your back yard may be refused because
it impinges on a common element or does not conform to the
aesthetics of the site,” explains Harris.
“Once this application is agreed to and signed by both the owner and
the board, it constitutes a legal agreement, listing the terms and
conditions that the owner must follow. This agreement is then
registered on title, as a record of renovations made to the unit for
both the owner and the condo board.
“In renovating a condo, you should also look at the long term costs
involved, beyond the actual renovation costs. Condo living is group
living – you may incur the future cost of restoring the unit to its
original state, or the human cost of poor relations with neighbours
due to renovating without permission,” advises Harris.
Renovating a condo also ties into the issue of the condominium
reserve funds and how to fund them. “Condominium boards face
problems in budgeting for major repairs and replacements,” says
Chartered Accountant Stephen Chesney, Partner, Parker Garber &
Chesney LLP in Richmond Hill. “That’s because boards operate within
legislative requirements and must pay attention to what the 2001
Condominium Act says about reserve funds.”
Chesney explains that boards have very specific legal obligations.
“The Act states that a reserve fund study must be updated every
three years and be fully funded by 2014. Newer buildings
incorporated since 2001 must have a reserve fund study by the end of
the first year and be adequately funded by the end of the second
year.
“A reserve fund study is based on an engineering survey of the
common elements and estimates when these elements will need repair
or replacement. These estimates cover a 30-year period and are
adjusted for interest and inflation rates. Based on these estimates,
the board then makes a funding decision on how they will keep the
reserve fund ‘adequate’ to cover these future expenses,” details
Chesney.
“The problem is, the Act is vague and does not define what
‘adequate’ means. Because the reserve fund study is only a
guideline, boards can draw up their own budget for renovations. In
doing so, they must follow the Act and replace the funds, in order
to ensure that their reserve fund meets the definition of
‘adequate.’
Boards also run the risk of being sued by owners for poor financial
responsibility. “An audit adds accountability. Under the Act,
condominiums with 25 or more units are required to have an audit, in
which auditors examine the financial statements to ensure that the
legislative provisions are being met,” says Chesney. “Many condos
are not being audited, and consequently current financial
information is not available. Not only is this a serious
contravention of the law, it also raises the question – why spend
money renovating when you don’t know if the condo is financially
stable?”
Both Chartered Accountants agree – understand your obligations
before you start calling any contractors.
Provided by The Institute of Chartered Accountants of Ontario |
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