Co-ownership work is of the utmost importance. Yet, they are more often than not overlooked by the syndicates of co-owners. Work that needs to be done in common portions can be minor or major in scope. Yet one needs money to pay for them. Good financial planning is therefore advisable in the medium and long term, so that the community of co-owners can adequately protect its real estate investment.
Replacing windows, the roof or rehabilitating the underground parking slabs, to name just a few examples, is usually very expensive. Three options are available to the syndicate to pay for this work:
The (annual)current budget
The board of directors is responsible for integrating (in the budget forecast) the cost of the maintenance or preservation work of the common portions. In this budget, all expenses must be funded by an equivalent amount of money. This money comes essentially from common contributions, that is to say condo fees paid by the co-owners. In principle, they contribute to the extent of the relative value of their fraction.
Exceptionally, and as a counterpart of the restricted use they enjoy on certain common portions, these co-owners contribute alone to the expenses resulting from this use (special common expenses). If it is necessary to carry out work on the common portions for restricted use, it is these co-owners who will have to contribute to finance it.
This exception is limited, however, only to minor maintenance or repair work. It does not extend - unless a particular provision provided for in the declaration of co-ownership - to major repairs or the replacement of common portions, which should normally be financed by the contingency fund.
The work can also be financed by a special assessment. In real terms, this assessment is a request of the syndicate to its co-owners, for amounts each of them must pay, in order to assume expenses which are not generally foreseen in the (annual) budget forecast of the co-ownership. This assessment is often related to the execution of work that must be undertaken by the syndicate, and for which using the contingency fund is not possible, either because it is insufficiently funded or because of the nature of the work.
The contingency fund
Work can generally be foreseen. Thus, in anticipation, the syndicate should establish a fund whose purpose it is to ensure its financing. This "common reserve" will then regularly be funded by all co-owners. Rather than resorting to special assessments, the board of directors may, in due course, draw therefrom the necessary sums to perform certain type of work. In fact, the co-owner’s contributions to the contingency fund is intended to be used to pay for major repairs and the replacement of common portions, whether for restricted use or not. The method of allocation (share) is the same as that for general common expenses, that is to say according to the relative value of each fraction.
However, article 1072 sub-paragraph 2 of the Civil Code of Quebec limits the application of this rule. It specifies that in order to establish the co-owner’s contribution to the contingency fund, their respective rights on the common for restricted use portions may be taken into account. For example, the declaration of co-ownership could provide for a provision allowing to charge to a co-owner the costs associated with the replacement of a terrace of which it has exclusive use.
When a syndicate does not have the required sums or if the contingency fund is insufficient, and / or can not be used to carry out the work, such work can be financed by the means of a collective loan. This loan, which can be contracted directly by the syndicate of co-owners, will allow the maintenance or rehabilitation of common portions. It will be up to the board of directors to negotiate its terms and conditions with the lending institution. Installments will be withdrawn from the syndicate's bank account, which will in turn recover the amounts through the monthly contributions (condo fees) paid by the co-owners.
The syndicate could also opt for the individualized group loan formula, even if its cost is slightly higher. The board of directors regroups the co-owners interested in this kind of financing, after which each participating co-owners borrows an amount (for its fraction only) equivalent to its share of the cost of the work. To take advantage thereof, debtors must be up to date in paying their condo fees.
WHAT YOU SHOULD KNOW ! Maintenance work on the immovable is usually financed by the co-ownership budget forecast. However, it could be otherwise for work relating to the replacement and major repairs of common portions. Their financing usually comes from the amounts accumulated in the contingency fund.
WHAT TO KEEP IN MIND : Co-owners unable to pay a special assessment, so that work can be carried out in their co-ownership, can - in certain circumstances - borrow the money they need thanks to a funding program offered by the “Regroupement des gestionnaires et co-propriétaires du Québec” [(Québec association of Managers et co-owners)(RGCQ)].
WARNING ! The financing of the construction site by conventional special assessments is sometimes uncertain, as co-owners may be late in paying their contributions. On the other hand, a group loan will stagger the cost of the work over time, which will make it easier to support.