Myth About Condo Fees

October 8th, 2007

Condominium or Maintenace Fees

The most common reaction from many condo buyers is their reluctance towards paying condo fees. The concept of condo fee is often misinterpreted and misunderstood. In fact, condo fee has a great deal to do with the major benefits of living in a condominium. The condo fee/ maintenance fee may sound like an extra monthly burden to some; but this assumption does not ring true, if you count the many benefits that you receive in return.

What are common expenses?

Condo fees are each owner's share of the common expenses of a condominium corporation. The Condominium Act defines common expenses as "the expenses related to the performance of the objects and duties of a corporation and all expenses specified as common expenses in this Act or in a declaration." In other words, all expenses properly incurred by the corporation are common expenses. The condominium board prepares a budget for each fiscal year of the corporation. The budget sets out the amount of the estimated common expenses. Each owner's monthly contribution is determined by multiplying that amount by the owner's common expense percentage as set out in a schedule to the declaration and dividing by twelve.

Common expenses, maintenance fees or condo fees – are payments that unit owners must make every month to cover their portion of the expenses for the common elements (areas in the condominium development enjoyed by all residents). Common expenses pay for daily care and upkeep of the condominium.

What is Reserve Fund?

The Reserve Fund is a fund set up by the condominium corporation to cover major repairs and upgrades to the building, including items such as the roof, elevators or parking garage. A portion of each common expense payment goes to the Reserve Fund.

What does condo fee cover?

Maintenance fees in a condominium apartment building covers heat, hydro, water, cable (some cases), common elements, window cleaning, pest control, landscaping, exercise, gym, pool, tennis, squash, billiards, concierge etc. Approximately 35 to 45 per cent of condo fees cover utilities such as gas, hydro and water – items that are always over and above your mortgage and tax payments, irrespective of where you live. Plus, in condominiums, a portion of condo fee takes care of building insurance (condo residents only pay for the insurance costs for their contents).

Security is another important factor. Most modern condominium apartment buildings include 24/7 monitoring, part-time or full-time staff at the front entrance. Security costs can represent up to 15 to 17 per cent of condo maintenance fees. If you install a security system in a house, you will pay extra for installation and monthly monitoring costs.

The cost to service and maintain a pool or a whirlpool is only a small fraction (normally it is less than two to three per cent of annual condo budget). These costs are a small price to pay for luxury that you and your guests can enjoy. And for sure, these amenities always come into play at the time of resale and positively impact your selling price.

Do larger condo buildings have higher condo fees?

Not always. Buildings with many units often beneft from the economies of scale principle, meaning, cost of amenities are spread over many suites. This is one reason, why sometimes larger buildings with many amenities come with a lower condo fee than smaller buildings with fewer amenities.

Many condo townhouse maintenance fee covers – roof, windows, outside structure, landscaping, compound road maintenance, snow removal, curb repair and maintenance etc. And thus, fees work out to be much less than condominum apartments.

Maintenance of freeholds vs. condos?

Imagine the amount that freehold property owners may spend, who opt to pay someone else to carry out some of the above works. Some of my freehold property clients pay almost $500-$1,000 per year for snow removal and their lawn's weed treatment etc.

In condos, you do not worry about future major repair of common elements, if the reserve fund (at least 10% or more of monthy condo fees is put aside towards reserve fund) is well managed. And there will be no need to shell out enormous amounts of money to replace roof, windows etc.

Some readers might argue that they would rather pay $50,000-$75,000 extra to buy a similar sized freehold property and secure the above amount as a mortgage with their bank. Fifty to seventy thousand dollars loan can work out to $300-$430 per month in monthly mortgage payments (25 year amortized loan, 5% interest rate).

In the former case you can live worry free and enjoy the amenities at the cost of monthly condo fees. Where as, in the latter case you will pay not only extra monthly mortgage (making banks more richer) but also will have to set aside extra funds for roof, windows, driveway, landscaping, deck, A/C, furnace, replacement/ repair etc.

Another popular misinterpretition about condo fees:

In apartments, condo fee is generally based upon per sq ft basis. Say, if you buy a $700 sq ft condo (common entry level condo apartment), your condo fee can be $0.50 cents p.s.f or $350 per month. Similarly, an apartment of size 1,300 sq ft @ $0.50 cents, condo fee works out to $650 per month. It may appear that one condo apartment's fee is way more than the other, but if you look at it carefully one is paying similar price per sq ft of living space.

As a word of caution, you should not judge condominiums by their condo fees alone but also take into account other factors like size, reserve funds, management, work orders/special assessment, engineering report, financial health, what is included/ excluded in condo fees, who pays for heat, hydro, water, cable, parking/ common elements etc. Working with a real estate professional and a good real estate condo lawyer is the right approach when considering buying your condominium.

In a nut shell, condos are for your living pleasure and condo fees protect your investment. Think before you dismiss a condo, compare your monthly costs realistically with your current home. You will be surprised to find out that you get a lot more for your money in a condo.

As a condominium focused Real Estate Broker in Mississauga, you can contact me. I will help you achieve your condo selling, buying or investing goals, provide you with sound guidance.

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