The market value of a co-ownership is closely linked to the management of the building. In fact, sound management of the building allows you to maintain or even increase the market value of your unit.
At present, the media has not yet reported any major scandals concerning technical bankruptcies of co-ownership syndicates caused by unforeseen repairs or by losses that occurred when the insurance value of the building had not been correctly established. However, it is only a matter of time before this problem becomes widespread, because it involves significant managerial and asset risks.
Preserving your assets: a major challenge
Several factors contribute to managerial and asset risks: the aging of the real estate portfolio, low contributions to pension funds, the consequences of an economic slowdown in the real estate market or increasing household debt.
In other words, when we acquire a condominium, a large part of the risk to our assets lies in the responsible and efficient management of the co-owners. A lack of funds to ensure preventive maintenance of the building accelerates its physical deterioration; urgent and necessary repairs therefore lead to greater expenses.
Condominium management and market value: an inseparable duo
Some might think that it is enough to pay for repairs in due time. However, this is not always realistic, especially if a large part of the units were acquired without a significant initial contribution from the co-owners. In this case, the condominium has limited room to maneuver, which reduces the possibility of remortgaging or obtaining a personal loan to finance major repairs when they become necessary.
A financial institution will refuse to grant a mortgage loan greater than the value of the property. As for the personal loan, the lender will take into account the overall debt, including the mortgage loan. As for the sale of the unit, who would agree to pay the asking price? The buyer will offer the market value less the cost of the necessary repairs, which does not generate new money for the seller. Thus, the wealthiest co-owners will have to finance the expenses, otherwise it will be the technical bankruptcy of the syndicate. And in this case, who will want to buy?
The solvency and management of a condominium syndicate have a direct impact on the market value of the units. Based on my experience, over 50% of condominium syndicates could be insolvent due to the mismatch between the contingency fund, the financial situation of the co-owners and the physical condition (obsolescence) of the buildings or the advanced stage of the economic life of the building envelope components, equipment and building structure, if applicable.
Transparency at all costs
Selling your unit without disclosing problems with the building or the financial situation of the condominium syndicate would expose you to significant risk. The potential buyer could take legal action if known problems were not noted in the minutes or if they were not brought to their attention.
While the buyer must be vigilant, the seller must be transparent in order to avoid legal action.
A Look to the Future
It is essential to look at the new legislation concerning co-ownerships, namely Bill 16. Adopted in December 2019, this law aims to protect the rights of co-owners and promote more transparent and responsible management of co-ownerships. In particular, it requires co-ownership syndicates to obtain a contingency fund study and an assessment of the value for insurance purposes every five years.
The purpose of the contingency fund study is to assess future financial needs for major repairs and renovations to the common areas in order to ensure that the syndicate has sufficient funds to cover these expenses without creating a financial burden for the co-owners. This study must be carried out by a member of a professional order such as an engineer, an architect, a certified appraiser or a technologist. As for the assessment of value for insurance purposes, it can only be carried out by a certified appraiser, a member of the Ordre des évaluations agréés du Québec, since this act has been reserved for them since this law came into force.
Furthermore, it is surprising to hear criticism from condominium syndicates against the government regarding the implementation of this new law. Indeed, the
members of the boards of directors of the syndicates are opposed to the costs generated by these studies, stating that they do not need to use experts since, according to them, they have all the knowledge necessary to administer and manage a divided co-ownership. These cognitive biases are also widely detailed in the scientific literature in the chapter on managerial, patrimonial and technical risks.
In conclusion
When the media broadcasts an increasing number of insolvency cases, the repercussions on irresponsible syndicates will be significant. Living in a co-ownership means sharing a collective heritage, part of which is included in your individual heritage.
In short, two main risks can affect the value of your co-ownership: economic factors and poor administration and management. While the first risk is beyond your control, the second can be mitigated by sound administration and proactive and responsible management. Participating in co-owners' meetings and investing in collective management is essential to protect your heritage and that of the community.
"An ounce of prevention is worth a pound of cure." Benjamin Franklin
Yvon Rudolphe, MBA fin., É.A., CMC, F.Adm.A.
Consultant and wealth administrator
Chartered appraiser
Rudolf Groupe Conseil
Tel.: 514 362-8008
Email: [email protected]
