If you’ve shopped at the local supermarket recently, you probably noticed items are more expensive than they were not too long ago. Or maybe you’ve ordered an item online for next day delivery, only to be told it would take much longer to arrive and at a higher cost than expected. Welcome to our new and unfortunate reality.
This phenomenon of price increases and shortage of items is also affecting every aspect of daily life, including common element fees, which are paid each and every month to both new and old condominium corporations.
A short time ago, corporations were preparing their yearly condo budgets, relying on historical actual expenses, which were almost in line with past expenses. After taking into consideration a reasonable inflation rate, such as C.P. I., a new budget was created.
As well, the reserve fund contribution, representing one of the largest expense items in the budget, was based on the reserve fund study, prepared by the corporation’s engineer. This deals with the major repairs and replacement and is updated every three years, based on the costs available to the engineer and taking the inflation rate into consideration. However, the corporation’s engineer will have to update the study in order to reflect the new reality of costs, of which there are various contributing factors.
The pandemic has heightened the cost and shortage of labour, in turn impacting delivery and cost of materials, as well as other company expenses like wages and salaries. Boards and management companies are now required to reduce and control the impact of these costs on common element fees.
To start, they should identify what expenses they can control, while at the same time, recognizing costs such as insurance which also will be affected because the insurance companies will take expenses into consideration when determining the premium and the cost of replacement. Utility prices are expenses which we cannot control and, therefore, will be an issue to the condominium corporation to be dealt with.
The board of directors, together with its management company, should explore all the possibilities, for instance, LED retrofitting of the light fixtures and installing energy efficient equipment. In doing so, they should inquire about any available government incentives and if it would be worthwhile and beneficial to the condo corporation to take advantage of them.
As well, the board should review all its existing contracts, noting the expiration day and the cost for each service. The corporation should then enter into negotiations with the contractors to see what possibilities there are to get the best price possible and what is currently available, while exploring if the contract can be extended for a longer period in exchange for a better price.
In doing so, the corporation should also consider if the contract still has a few years left, to blend the past contract price with the current contract price. To be in a position to negotiate any price, it may also require the corporation to obtain new quotes to better understand the new reality costs.
With the shortage of labour comes an increase in the cost of labour. This new reality might affect almost every aspect of the operating expense. Condo corporations that employ a superintendent should see if certain maintenance can be done in-house or consider the possibility of hiring an in-house maintenance worker (if you find one). Of course, a corporation would have to consider if the liability of hiring an employee outweighs costs of outsourcing repairs.
To avoid unnecessary expenses that will come at a higher cost, it is ever more important to maintain the various physical aspects of the building due to the inflationary factors of the operating expense. This new reality requires attention to details and competence to work through this difficult time.
Shlomo Sharon is the CEO of Taft Management Inc.
