Financial stress is a hot topic in Canada. Between political/economic uncertainties, the potential impact on construction materials with the imposition of tariffs, and supply chain monopolies, our current environment can be tricky to navigate both logistically and emotionally.

Canadian businesses and their consumers are facing difficult hardships, as we’re reminded of this in the media. Specifically for condos, regional news sources spotlight the increasing amount of compounded stress that corporations and their unit owners must cope with due to special assessments for necessary repairs and replacements to common property elements. In a recent article published by the CBC, one condo owner from London, Ontario saw, in less than a year’s time, his condo fees climb 36%, along with a $5,000 special assessment. That is not an easy situation for most, and, unfortunately, this owner is not alone. Research indicates that 48% of Canadians have reported losing sleep due to financial stress.

As well, a growing number of new reserve fund studies have determined that corporations don’t have sufficient funds to cover necessary updates/replacements. Causes for this include significant increases in construction costs, increased labour wages, and earlier than forecasted major common element component replacement requirements. Balancing fiduciary duties, keeping common element fees competitive in the marketplace for real estate investment value and resale purposes, and maintaining owner harmony are ongoing challenges many condo boards face.

One important fact owners need to remember is that the board members are typically owners of the corporation and are also confronted with necessary funding increases. The board has an obligation to do their due diligence and they should rely on professional advice (i.e. auditors, engineers, lawyers, condominium managers) in any forecasting or project deferral recommendations. Full transparency and having an open dialogue with the owners will provide reassurances that the board of directors has completed a full review and assessment of the situation before any decisions are reached.

The reality is more boards have to deal with a very challenging financial environment in properly managing their condominium and community. They are looking for alternative solutions to the dilemma. A corporate loan should be considered as a potential strategic option to special assessment.

While it isn’t an easy topic for a condo board to evaluate and navigate, knowing how to present a loan option and manage community responses can help ease anxieties for both the board and community members.

WHY & WHEN A CONDO CORP LOAN SHOULD BE CONSIDERED

Without available savings to cover the special assessment, many owners will have to brave the financial burden of borrowing personally. On an emotional level, the process of obtaining new personal debt can be jarring, time consuming and anxiety-inducing. No condo board wants to heighten the financial stress of their community members, but sometimes there is no choice if they are to satisfy their responsibility to maintain the common elements. It is important to remember there is more than one path they can take.

As an alternative to forcing owners to pay a lump sum special assessment and securing the means to pay for it, certain specialty lenders in Canada will provide a loan to the corporation as an option. This allows the owners to pay for the cost of the project(s) over time through increases to their monthly condo fees. This offering can reduce stress in the following ways:

• The loan leverages the borrowing capacity of the corporation to obtain a favourable rate and provide an affordable solution to all owners.
• The loan is with the corporation, so no lien or registration is placed on any individual unit.
• The loan option is an affordable way to pay for projects now to avoid costs associated with deferral or phased major projects.
• The cost of the replacement/improvement is paid for over time and is shared by current and new owners.
• The loan can be included in the reserve fund study to potentially ease the necessary increase in monthly condo fees.

LOAN IS LOOKING LIKE THE RIGHT MOVE: NOW WHAT?

Once a loan option may be the right solution for the community, these important steps should be taken to minimize the stress for the board and the owners.

1. Education: Early in the process of considering a loan as an option to special assessment, project deferral or project phasing, boards should fully understand the lending process in preparation for communication to the owners. Preparation should include:

• Arranging presentations from at least 2 lenders experienced in condo lending and the corporation’s reserve fund study engineer. Be sure to ask questions about term, amortization, rate, process, borrowing by-laws, etc.
• Request your preferred lender to provide a term sheet and other educational resources.

2. Communication: The board should communicate to the owners early and frequently in the process to lessen the uncertainty. The community should be provided with the following:

• Reasoning for the board’s decision to look at the loan option, • Information on the loan option and the benefits to the owners,
• Confirmation that the board has assessed different lenders in selecting a partner to work with,
• Estimated financial impact for each owner,
• Town Hall meeting(s) for the lender to present and address all questions from the unit owners, and
• Consistent updates on the loan review process.

The owners should be provided with as much information as possible to fully understand the loan option and know the board has done their due diligence in evaluating multiple loan offers. This shows that the board has weighed their options to find the best possible solution to this challenging financial situation.

This will also effectively prepare owners, board members, and property managers for the important borrowing by-law voting process, which authorizes the board to borrow on behalf of the corporation. When communication with the owners has been thorough, clear and frequent, owners will be more comfortable with the process and more confident in their voting decision.

Having to deal with a reserve fund shortfall is very difficult for the board, property managers and unit owners. The board has a duty to maintain the common elements and get necessary projects done. A good understanding of the loan option by all parties, paired with strong communications for the owners, will alleviate some of the stress when shortfalls in reserve funds arise.

CWB Maxium Financial provides financing options to condo or strata Boards faced with reserve fund shortfalls. Industry-leading professionals in condo financing allow CWB Maxium Financial to provide your corporation with prompt, reliable and creative solutions. We work with the Board, property managers, owners, engineers, consultants and contractors – presenting at Board and owner meetings if requested. Our experts help answer questions and make sure each condo’s unique circumstance is considered before curating financing solutions. Visit www.cwbmaxium.com to learn more about how our financial experts can support you and your business.