Municipal Responsibility

At last fall’s ACMO/CCI-T Condominium Conference, the question was raised as to the role of municipalities in creating healthy condominium communities, particularly given that condominium corporations are becoming more and more prominent across Ontario.  The City of Toronto’s recent launch of a consultation that seeks to engage condominium occupants to identify issues and develop recommendations is indicative of a growing recognition that healthy condominium communities are important to develop or sustain healthy municipalities.  While not condo specific, the City of Toronto is also pursuing its “Tower Renewal” initiative, which will, directly or indirectly, have an impact on condominium corporations.

To this end, municipalities can best serve their own interests, together with the interests of individual condominium corporations, by recognizing and appreciating the different “types” of condominiums, the optimal placement of each “type” of condominium within the municipality, as well as what can occur if long-term interests of both the municipality and the individual condominium corporation are not valued or promoted.

Very often, it appears to be that short-term interests are recognized and valued with little appreciation or weight given to long-term ramifications.

For example, at the risk of sounding overly simplistic, one can imagine that municipalities value the revenues created through robust condominium development.  Looking forward, municipalities should also look favourably upon the long-term tax base that future development would bring, particularly to the extent that condominiums currently provide municipalities with property tax income at the same rate as traditional housing without the same degree of corresponding obligations/expenses (an issue being brought to light by CCI’s Fair Tax Campaign).  From the developer’s perspective, one would imagine that marketability is key, particularly from the initial cost point in terms of purchase price and expected common expenses.  The developer builds, sells and moves on.  In the short term, the interest of the municipality and the developer will likely align; however to stop the analysis at this point is premature.

The municipality’s interests are, however, both short and long-term. Short-term revenue from the development process, long-term revenue from the newly established tax base. Accordingly, it seems only logical that municipalities would benefit by having a full understanding of the long-term interests of any particular condominium corporation that is being proposed for construction.

From the perspective of both the municipality and the condominium corporation, interests align if the condominium corporation is well maintained and well run, creating a community where people want to live and move to, rather than one where people would rather move away from.

One of the most obvious examples relates to the popularity of common elements condominiums. In a common elements condominium, there are no “units”; the individual “homes” are legally tied (as parcels of tied land known as “POTL”s) to a condominium corporation consisting only of common elements. Consider a neighbourhood that surrounds a golf course: the golf course is the condominium corporation and all the homes in the neighbourhood are tied to it and contribute to it, but are not technically part of the condominium corporation.

The distinction lessens when one thinks about the more typical common elements condominium, specifically, a townhouse development where the interior roadways (only) form the condominium.  This arrangement is difficult to distinguish from the more traditional “standard” condominium. 

From the marketability standpoint, the attraction to common elements condominiums includes exceptionally low monthly common expense fees - as all aspects of maintenance and repair of the “homes” fall outside of the condominium. Similarly, from a purely “cost” perspective, the interests of the municipality are advanced regardless of condominium type involved.  Development fees are paid and, to the extent that the condominium corporation is responsible for snow clearing, road maintenance/repair, light standards, sewers, water mains, etc., the municipality has effectively downloaded this responsibility onto the condominium corporation.

Thinking long term however, the condominium corporation is being treated as a fourth level of government, yet does not have the tools to sufficiently function as a fourth level of government.

Economies of scales are vital to the efficient operation of any government - municipal or otherwise.  This is no different in the context of a condominium corporation. Large municipalities have a larger tax base and are able to put in place a bureaucracy with the necessary expertise and funding to efficiently run and operate.  In contrast, smaller municipalities may struggle due to a lack of resources (consider the Walkerton water tragedy of 2000). Condominium corporations are no different. A one hundred (100) unit standard condominium will have roughly the same challenges as a one hundred (100) unit common elements condominium. The roadways, sewers, water mains and light standards must be maintained and repaired, a property manager must be hired and paid and legal and engineering challenges will arise.  However, the common elements condominium is required to operate with ⅓ to ¼ of the budget of the standard condominium.

While a one hundred (100) unit standard condominium is typically professionally managed, and as such can leverage the knowledge and expertise of its property manager, a one hundred (100) unit common elements condominium may not be able to afford professional property management.  To compound this problem, as one moves outside of the larger metropolitan areas throughout Ontario, the average size of condominiums drops tremendously.  In smaller common elements condominiums, professional property management likely is not even considered and the  Boards must wrestle with the pros and cons of not incurring costs associated, for example, in seeking needed advice from lawyers and engineers.

The result is a greater challenge to the community and to the individual owners who do want to be responsible participants within the community (Board members), notwithstanding the very large question mark as to whether the long-term interests of both the condominium corporation and the greater municipality are truly being served (or even can be).  

All of the information contained in this article is of a general nature for informational purposes only, and is not intended to represent the definitive opinion of the firm of Elia Associates on any particular matter. Although every effort is made to ensure that the information contained in this newsletter is accurate and up-to-date, the reader should not act upon it without obtaining appropriate professional advice and assistance.

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