October 13, 2015 - A contingency funds survey was recently carried out. It confirmed our apprehensions dating back several years: the lack of discipline of many syndicate of co-owners could eventually lead to a general loss of confidence towards co-ownership’s concept of collective housing.
The three parties in the survey, the RGCQ, the FCIQ and the APCHQ, are concerned about these results, as it shows that several syndicates of co-owners do not invest enough in their contingency fund.
Insofar as the RGCQ is concerned, the results were predictable. Indeed, this non-profit organization sounded the alarm on many occasions since its creation in 1999. For example, the survey found that 49% of co-ownership directors do not have any measuring instrument to determine exactly how much to contribute to their contingency fund annually.
It’s time to get rid of the 5%
In addition, two-thirds (67%) of respondents confirmed their contingency fund was insufficient, due to annual contributions of less than 5%. This percentage, however, is the minimum required (by Law) to be deposited in the fund, although it is, generally, grossly insufficient in relation to the real needs of an immovable. In order to replace the common portions of a co-ownership that have reached the end of their life expectancy, or to carry out major work, when the time comes , the required percentages can be as high as 10%, 15% and sometime even more.
Not surprisingly, out of 863 participants (co-ownership directors and managers) in the survey, some 41% stated they had run out of funds to finance work, under the realm of the contingency fund that could not be postponed. In 68% of the cases, the lack of funds occurred in immovables built more than 15 years ago. As a result, in 61% of cases special assessment had to be levied. It appears that this practice has become commonplace in co-ownerships. Nevertheless, a large proportion of respondents would prefer, by a wide margin to contribute the appropriate amounts of money to their contingency fund and thus have a better medium and long term vision.
Purchaser’s negligence
Many condo purchasers do not carry out a pre-purchase due diligence. For them, the financial viability of the immovable is not a concern, due to a lack of knowledge of the many accounting complexities of a co-ownership. "Consequently, this financial viability becomes a determining factor in determining the purchase price," says Christiane St-Jean, FCIQ’s board member and President of the Chambre immobilière du Québec (Quebec City Real Estate Chamber).
"The legislator must act as quickly as possible to change the situation, because at this time, the acquisition of a condo in Quebec is a true profession of faith," said Yves Joli-Coeur, Lawyer Emeritus and General Secretary of the RGCQ.
In a period in which condo sales are declining in Quebec, the results of this survey could give pause to many prospective purchasers. As early as 2015, the APCHQ forecasted a 9% decline in co-ownership startups, thus it should be avoided that some buyers question the idea of buying a condo. To avoid this occurrence, the Quebec government must announce co-ownership legislative reform as soon as possible. A bill is in preparation, recently announced the Minister of Justice, Stéphanie Vallée.
Montreal October 13, 2015
