Builder Underestimated Condo Fees & Budget By 60-70%

Multi-family construction in Calgary is booming with starts last month posting a 397.2 per cent year-over-year increase to 1,780 units. Of those 1,780 starts, 1,410 were apartments, bringing the total number of apartment starts to 4,010 to the end of June and the number under construction to almost 7,000.

That means there are going to be a lot of units for sale in the next couple years and I wanted to share an experience that will help educate buyers of new condos.

Another Calgary REALTOR® recently related this story:

“A client of mine just called to inform me that the brand new condo I sold her (that she has been in for 6 months) will need an increase in the condo fee by 60% to fund the budget that was estimated at almost 70% under the actual costs. The owners will also need a cash call of approximate $1,200 per unit to catch up to the current expenses.  Did I mention that this building is 6 months old!! She would never have purchased the unit of she knew the condo fees would be in the mid to high $400 range.  The builder has built many similar developments and should have a better idea of the cost to operate these buildings.”

Sadly, this isn’t just a one-off.   The budget and condo fees marketed by some developers are oftentimes woefully low.   I liken it to car commercials that brag about their model getting a certain gas mileage.  Have you ever had a vehicle that came close to attaining the specs advertised?  Likewise, there’s a chance that the promotional fees and budget forecast isn’t going to be enough to run the condominium once it’s built.

Calgary real estate lawyer Lou Pesta with Walsh LLP has this tip:

“Unfortunately this is a fairly common occurrence with new condominium developments (to a greater or lesser extent)…In advising buyers of new condominiums it would be wise to advise them that the budget is likely to be understated and final numbers will not be known until the owners take over the management of the complex and determine what level of services they would like.”

2 responses to “Builder Underestimated Condo Fees & Budget By 60-70%

  1. Such a shame to read. Another tactic developers use is to keep phased projects under their control until its fully completed so they can keep the condo fees artificially lower. Causes big problems when they can take 3-4 years to finish where the first building starts needing repairs but no reserve fund is being collected in buildings many years old.

    I am curious though about a few things:

    1: How does a real estate lawyer not red flag an operating budget that is so far off that a special assessment is needed immediately after turn over? They must share some of the blame in educating or helping their clients.

    2: Doesn’t the new condominium act changes fix this exact issue with a proper reserve fund study\budget needing to be prepared for condos? I thought this was to take effect soon.

  2. Hi Michael, thanks for posting your comments.

    Often the buyer’s lawyer isn’t even involved in the transaction until a few weeks before possession and by that point the buyer can’t back out without serious financial repercussions. That’s why it’s important to have all the documents reviewed and discuss the contract with your lawyer before waiving conditions.

    The amendment to Alberta’s Condominium Property Act is still in the proposal and discussion stage and I haven’t read of a date as to when the changes will be implemented.

    It’s supposed to improve protection for buyers by requiring “developers to provide buyers with a budget or proposed budget for the corporation; the anticipated monthly condo fees, determined on the basis of the budget or proposed budget.”

    That doesn’t solve the problem in the above case though, does it? I think an independent and impartial third party should be required to put together the initial budget, not the developer. I have forwarded this recommendation to the CPA Review Project Team which I hope they will heed.

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