The Importance of a Status Certificate

In today’s competitive real estate market, some purchasers are taking the risk of entering into a deal on a condominium that is not conditional upon the review of a status certificate by their lawyer. It is important to keep in mind that your purchase and ultimately your investment is not limited to the unit. Understanding the building’s financial and legal status will assist you with determining the level of risk prior to firming up the agreement.

The status certificate provides an overview of the financial and legal status of the unit along with some insight into the management of the building's common elements. It contains an abstract, budget, reserve fund study, condo bylaws/rules and insurance information.

Under the Condominium Act, 1998 the financial balances cannot be older than 90 days as of the date when the status certificate was issued, and reserve fund studies must be completed every three 3 years.

The financial documents may reveal, among other things, a history of major repairs, announcements of future repairs or trends of underfunding. Major repairs or consistent underfunding can spell trouble down the road as they have the potential to drive up costs beyond the reserve fund limit. This could be symptomatic of deficiencies in construction and/or poor governance.

In such an event, the condo board may levy a special assessment against the owner’s unit. A special assessment is a lump sum of money to be paid in addition to a unit’s monthly common expenses to address major repairs that cannot be financed with the reserve fund. However, as anyone who has undertaken a renovation may know, such projects are not immune to unforeseeable delays and costs. In other words, further special assessments may be on the horizon.

It is worth considering that if a building is subject to major repairs early on in its lifespan, it could be a sign poor build quality. In the alternative, if there are no upcoming major repairs, but the reserve fund has been fairly conservative with common expense contributions to maintenance and the reserve fund, the lack of funding could mean a compounding of maintenance issues due to neglect as the building ages.

The status certificate may also disclose that the condominium is involved in court proceedings, which will require a diligent review of the condo’s insurance policy to determine whether it is adequate to cover such claims. If insurance coverage is inadequate it could result in increases to common expenses, or a special assessment.

Further, condo bylaws and rules may reveal restrictions or prohibitions that affect your lifestyle. For example, you may not be able to bring your cat or dog with you. If the bylaws and rules allow for pets they will come with restrictions and the board will often reserve the right to remove the pet if deemed a nuisance.

The above is to illustrate in broad terms some risks to consider prior to finalizing your purchase and is not intended as legal advice. To better understand the options available to you consult with your Toronto Real Estate Lawyer.