October 16, 2009

GTD AQUITAINE

The Ontario Condominium Act requires condos to set aside adequate reserve funds for future repairs.

Contractor flexibility helps sell repairs to cash-strapped condo groups

PETER KENTER

correspondent

In the early days of condominium and townhouse development in the Greater Toronto Area (GTA), the level set for reserve funds for repairs and maintenance beyond a bare minimum depended largely on the management of individual condominium corporations.

Changes to Ontario’s Condominium Act in 2002 set out the mechanism by which reserve funds needed to be established to pay for future maintenance — a difficulty for owners of buildings built in the 1960s and 1970s, with paltry reserve funds and a potentially greater backlog of repairs.

The result is a great need for building repairs, in large part repairs to the building envelope, and a shortfall of money to pay for them. Building contractors who want to take on such building envelope repair projects need to be creative in the way they approach potential clients, says Gerry Genge, president of GRG Building Consultants in Newmarket, Ont. and president of the Ontario Building Envelope Council.

“Changes to the act caused the owners of many highrise condos to have to make big jumps in reserve fund contributions,” says Genge.

“People who spent $40,000 or $50,000 for their units in the early 1970s could probably borrow money against the value of their units, which is probably now worth five or six times what they paid for it, but it put a real financial strain on people who bought later in the game.”

A study finalized by GRG in 2003 for the Canada Mortgage and Housing Corporation showed that problems are far more acute for 1970s buildings, while those built in the 1980s and 1990s are in better shape, largely the result of more stringent reserve fund requirements over the years.

“You can’t simply say that the newer buildings are better built,” says Genge. “It’s largely the function of the reserve fund.”

The study examined 209 buildings in Metro Toronto, Halton, Peel, York and Durham, looking at the reserve funds established for the buildings and their condition.

Results showed that of buildings from the 1970s — representing 32 per cent of the sample — only seven per cent were considered to be in good condition with stable reserve fund plans and no need for heavy repair expenditures over the next decade.

Of the same stock, 42 per cent were considered to be in poor condition. About half the work required involved the buildings’ structures and envelopes.

Townhouse condominiums are generally in worse shape than highrises, says Genge, because they feature fewer common areas and have greater surface area per unit, exposing a larger building envelope to the elements.

Genge notes that contractors can increase their chances of netting building envelope repair contracts by agreeing to be flexible on financing and payments when working with cash-strapped condominium corporations and owners.

“If you just tell them the bill is $200,000 and its due when it’s due, they may not be able to handle the job at all,” he says. “That’s not an acceptable way to approach the repairs. The condominium corporation usually is willing to accept that the work needs to be done, so taking a deferred payment to help ease the cost can make the difference between the work getting done or not.”

It’s only recently that banks have become more willing to lend against the equity in condominium buildings for maintenance and repairs, says Genge. “They’re wising up to the idea that a condominium is an organization to which they can lend money.”

Genge says that some contractors are now quoting on condominium retrofit work by offering clients “lender tenders” in which banks have already been approached for their best proposed loan rates.

“Condo management doesn’t have to take the loan, but they understand up front how the project can be financed,” he says.

“Offering a lender tender doesn’t involve the actual contractor as part of the loan deal. Its just a way of helping the client to find ways to finance it.”

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