What a Status Certificate Tells You About a Condo Before You Buy

What a Status Certificate Is

A status certificate is a document package issued by a condominium corporation that describes the financial and legal health of the building. In Ontario, a condominium corporation is required by the Condominium Act to provide one within ten days of a request, for a fee that is currently capped at $100.

If you are buying a resale condo, your offer should include a condition allowing you to review the status certificate. If you are buying without conditions, you are accepting whatever is in that document, whether you have read it or not.

The certificate is not light reading. It typically runs 80 to 200 pages. Most buyers hand it to their lawyer and never look at it. That is a reasonable approach, provided your lawyer actually reads it and flags the things that matter. What follows is a guide to the sections you should understand yourself, so you can ask the right questions.

The Reserve Fund Study

Every condominium corporation is required to have a reserve fund study conducted every three years. The study projects the major repair and replacement costs the building will face over the next 30 years, including the roof, the elevators, the windows, the mechanical systems and the parking structure, and assesses whether the reserve fund has enough money to cover them.

The number to look for is the closing balance of the reserve fund compared to the recommended balance. If the reserve fund is significantly below the recommended level, the corporation will need to either increase monthly contributions or levy a special assessment to close the gap. Both cost you money.

A special assessment is a one-time charge to all unit owners, and it can be substantial. Assessments of $10,000 to $50,000 per unit are not uncommon in older buildings that have deferred maintenance. If a special assessment has been approved or is under discussion, it will appear in the status certificate. If one is likely based on the reserve fund shortfall, your lawyer should flag it even if it has not been formally proposed.

The Financial Statements

The status certificate includes the corporation's most recent audited financial statements. These tell you whether the corporation is running a surplus or a deficit, how the money is being spent, and whether the monthly maintenance fees have been increasing, and by how much.

Look at the trend over the past three to five years. A building that has been raising fees by two or three per cent annually is managing its costs. A building that has raised fees by ten per cent in a single year either had a problem it was not planning for, or was undercharging for years and is now catching up. Either way, expect further increases.

Also check whether the corporation is carrying any outstanding loans. Some corporations borrow to fund major repairs rather than levy a special assessment. The loan repayment is built into your monthly fees, and you are inheriting your share of the debt.

The Rules, Declarations and By-Laws

The status certificate includes the corporation's declaration, by-laws and rules. The declaration is the foundational document that defines the common elements, the unit boundaries, and the percentage of common expenses each unit is responsible for. The by-laws govern how the corporation is managed. The rules cover day-to-day matters like noise, pets, rentals and renovations.

Read the rules. They tell you what you can and cannot do with the unit. If you plan to rent it out, check whether there are rental restrictions or a cap on the number of units that can be rented at any one time. If you have a pet, check the pet policy. Some buildings prohibit certain breeds or impose weight limits. If you are planning a renovation, check what approvals are required.

These rules are enforceable. They are not suggestions. If you buy into a building that prohibits short-term rentals and you list the unit on a rental platform, the corporation can fine you and take legal action.

Litigation

The status certificate will disclose any current or pending litigation involving the corporation. This includes lawsuits the corporation has brought and lawsuits that have been brought against it.

Not all litigation is alarming. A corporation suing a contractor over deficient work is routine. A corporation being sued by a unit owner over governance issues is more concerning. Multiple lawsuits, or a pattern of litigation, suggests a corporation with internal conflict, which translates into higher legal fees, potential special assessments, and a building that is harder to sell when you are ready to move on.

Insurance

The certificate includes a summary of the corporation's insurance coverage. The key figure is the deductible. If the building's insurance carries a $100,000 deductible and a water leak in your unit causes damage to the common elements or to units below you, you may be responsible for that deductible. Your personal condo insurance should cover it, but only if you have purchased sufficient coverage, and only if you knew the deductible amount when you set your policy.

Check the deductible. Tell your insurance broker. Adjust your coverage accordingly. This is one of the most commonly missed steps in a condo purchase.

What Your Lawyer Should Tell You

A competent real estate lawyer will review the status certificate and provide you with a summary letter identifying any concerns. If they do not, ask for one. The things that should appear in that letter are: the reserve fund position relative to the recommended balance, any approved or proposed special assessments, any current litigation, any unusual rules that affect your intended use of the unit, and the insurance deductible.

If your lawyer reads the certificate and says everything is fine, ask them to be specific. "Fine" is not a legal opinion. "The reserve fund is fully funded, there are no pending special assessments, no active litigation, and no rental restrictions" is.

If you are considering a condo purchase in the GTA and want to understand what to look for before you make an offer, call me at 416-560-4983. I will help you ask the right questions before the status certificate arrives, not after.

Danny Macedo, Macedo Real Estate Group, Royal LePage Supreme Realty, Brokerage.