The skyline of Toronto is filling up with cranes building brand new sparkling condos. It’s a beautiful sight for a housing-starved city, but is a new condo the best investment for you? A recently released (and, in my opinion, underpublicized) report from Ontario’s Attorney General raises some serious concerns. 

In November 2022, Ontario’s Attorney General (AG) followed up a scathing report published in 2020 that laid bare serious issues in the condo development business. Turns out, many issues cited in 2020 have not been remedied. In the first of a series on new condo pitfalls, I look at how buyers could be blindsided by developers understating common expenses.

I’ve talked with many condo owners who have put their units on the market because their mortgage payments, combined with unplanned condo fee hikes (compensating for understated fees), made it impossible for them to make ends meet. It’s a horrible situation to be in, and, I don't want this to happen to you.

The first recommendation by the AG to the Ministry of Public and Business Service Delivery in the 2020 report was to mandate developers to provide greater clarity to buyers by using more standardized documents and terms. In the 2022 follow up, the AG reports “little or no progress” in adopting this recommendation. According to the report: “The Ministry indicated that it will need to hold extensive consultation with the public and stakeholders to develop a proposal for the government’s consideration.”

There are no agreed upon standards or forms for the purchase and sale of new condos. When a registered Salesperson in Ontario sells a resale condo there are standardized forms that are used across the province, most notably the Agreement of Purchase and Sale – Condominium Resale. 

The second recommendation made by the AG in 2020 seems like a no-brainer: A requirement for additional disclosure by developers of expected increases to common area expenses. The AG had found that some developers “omitted, understated or deferred maintenance costs to subsequent years to understate condo fees in their budgets.” Well, it’s 2022 and the AG is reporting: “little or no progress.” 

The 2020 AG report found that 73% of the condo boards it surveyed reported 10% to 30% increases in condo fees in the first two years after the condo’s registration. When you are a new homeowner carrying a high mortgage, this can hurt. Or if you are an investor and pay the condo fees on a leased unit, this could dramatically affect your Return on Investment. Has this problem been fixed? According to the 2022 AG report there has been: “little or no progress.”

While the Condominium Act, allows condo boards to claim common area expenses that exceed what the developer disclosed in its budget statement for the first year, this must be done within 30 days of receiving audited financial statements for the year. The AG recommends that 90 days is more appropriate.

The AG recommends that Ontario follow other provinces like Nova Scotia where developers must put money in trust to be available if the developer understated expenses. In British Columbia, developers that understated expenses had to pay a penalty.

Now, there are ways to avoid being blindsided when buying a new condo. You can do your research and make sure you are buying from a reputable developer. There are some stellar developers out there. Or, you could consider buying a resale condo in a building with a proven track record and knowledgeable board. Even then, it is essential to have a lawyer review a condo’s status report when buying a resale condo to ensure the corporation has the reserve funds to cover any pending repairs or replacement costs. The AG also suggests that reserve fund studies include repair and replacement costs to condo buildings for 45 or 60 years, instead of 30 years which is the present standard. 

The Ministry of Government and Consumer Services is considering changes to address some of these issues in a policy proposal that it expects to have may be ready by December 2024.

Watch for my next blog on the possible pitfalls of buying new condo builds. Follow me on Facebook, Instagram or subscribe to my monthly newsletter for updates and listings. 

(Images courtesy Unsplashed)