On June 27, 2019 the Government of Alberta announced that it was pausing the implementation of the changes to the Condominium Property Regulation that were scheduled to come into effect on July 1, 2019. These changes were broad in scope but perhaps the most sweeping change directly targeted at improving the lives of condominium owners was a cap in fees associated with the purchase of condominium documents for a perspective seller of a unit. In it’s release the Service Ministry of Alberta noted the pause in implementation and the review it is now conducting is aimed at “reviewing the regulations for excessive red tape”. The new proposed date for these changes is January 1, 2020.
In a standard real estate purchase contract for a re-sale condominium the buyer will almost always insert a condition for a condominium document review. When an individual is buying or selling a condominium, they are in essence buying or selling part of a business. The purpose of the document review is to allow the buyer to do their due diligence with respect to the business affairs of the corporation to ensure that they are making a healthy investment in a particular ‘company’.
While the condo doc review is for the sole benefit of the buyer, the burden of cost is shared between the buyer and the seller. The buyer is responsible with any costs of the actual review. Thus, if they wish to engage the services of a ‘document review specialist’ they buyer must pay that cost unless otherwise agreed in the contract. The seller, for their part, bares the cost and the responsibility of providing the condominium documents to the buyer so that the buyer may conduct their review.
The list of the documents (commonly called the disclosure package) that must be supplied by the seller is extensive. As a summation the documents will include things such as…
- Meeting Minutes for the Board of Directors for the past 12 months
- Most recent approved and draft copies of the Annual General Meeting (AGM) of the corporation
- Current Budget
- Financial Statements including most recent year-end and month-end
- Insurance Certificate
- Reserve Fund, Study, Report, and Plan
- Condo Bylaws
Essentially, all of these documents (and others) are intended to give the perspective buyer a strong understanding of the governance of the corporation, how it goes about business, and whether or not it is being operating in a fiscally responsible way.
Are Condo Documents free?
Every condominium corporation is different. However, as a general rule of thumb the seller will be expected to pay for the documents that they are required to supply to the buyer. Many corporations are managed by professional management companies and within the scope of service the management company will be required to generate information for the owner of a unit in a timely manner.
The Condominium Property Act of Alberta requires that when a written demand is made on the corporation to provide the information noted above, that the corporation has 10 days to fulfill that request. In some instances, the corporation or the management company on their behalf, will supply information to owners at regular intervals without charge. However, if owners are not diligent about maintaining and keeping that information, a replacement fee will be changed to prepare the documents. In other instances, no initial information is supplied and the changes are simply enforced upon the seller who will require the information in order to sell the unit.
The changes to the regulations that were intended to come info force on July 1, 2019 were designed in part to cap the fees for these documents. Currently no fee structure is regulated and thus the corporations or management companies which do charge a fee are free to establish their own structure. Since the owner requires these documents in a sale, and there is often no secondary source for the information, there exists a monopoly in this marketplace which sellers are forced to participate in.
Cost of Documents
For the average condominium seller, a complete set of condominium documents will cost $400-$600. I have heard of examples where these fees are significantly higher; up to $1200. Since prices have never been regulated, examples of gouging do exist. In the case of condominium bylaws which are publicly available on the Government’s SPIN 2 system for $10; I have seen the bylaws of a corporation split into 6 ‘parts’ and each part was resold for a $30 change for a total of $180!
As previously noted, some of these fees can be attributed to a ‘reproduction’ charge for documents that were already distributed at no cost. In other cases, they are simply an attempt to create a revenue stream on behalf of the corporation or management company and to benefit from a resource that every seller of a condo depends on.
Proposed Changes to the Regulation
In order to protect the consumer and eliminate the current system of limited oversight and unlimited fees, the Government had proposed some changes that were scheduled to take effect July 1, 2019. These changes include…
- Require the corporation to disclose board minutes for the year free of charge before an Annual General Meeting (AGM) to increase transparency
- Require that AGM minutes and a list of Board members be supplied free of charge to owners within 30 days
- Ensure owners have the annual budget free of charge
- Cap the amount that a corporation or management company can charge for documents requested by an owner at $10 each. ‘Rush Fees’ can still apply and they are capped at $30 and the documents must be supplied within 3 days.
In addition to requiring that a corporation provide many documents for free, the biggest coup for a perspective seller is the cap on the fees that can be changed for the remaining documents. Keep in mind that the ‘standard delivery’ time is 10 days. As a result, many sellers will still be paying the ‘rush fee’ in order to facilitate a transaction with a buyer. However, these rush fees of $30 per document are still more palatable than the current system in which there is no limit on fees.
The Road Ahead
In it’s June 27th decision to postpone the changes that were intended to take effect July 1, 2019, the Government of Alberta and the Ministry of Service noted that they are pausing the implementation in order to conduct a review aimed at “reviewing the regulations for excessive red tape”. In reality they have created more red tape, high fees for the short term, and excessive demands that continue to be placed on condo sellers.
Putting the implementation of these changes on hold was somewhat inevitable, not because of red tape, but because of politics. With the recent Spring election in Alberta and the change from an NDP to Conservative Government, every piece of pending legislation may face similar delays. It is never in the best interest of an incoming government to proceed with the recommendations of it’s predecessor until a thorough review has been undertaken. Make no mistake, this delay is more about government and politics and less about red tape for the consumer.
With the new date of January 1, 2020 now set for implementation it will remain to be seen if all of the original proposed changes survive the review that will be undertaken between now and then. One thing that will certainly change is the landscape in which management companies operate. For many years, the sale of condo docs has been a healthy revenue stream. With that practice almost certainly being capped, the management companies will need to offset that lost revenue. The most likely scenario will be to increase the cost of the management services they provide. I am already aware of one example where the management company increased it’s yearly charge by 30%. This will have the net effect of increasing condo fees on a monthly basis to compensate for the higher fees. In the end, whether the condo docs are capped, or free, condo owners will be paying for them one way or another.