News & Views

Importance of the Condominium Status Certificate
February 12, 2020

Importance of the Condominium Status Certificate

Written by Maanas Rautela

The status certificate is one of the most important documents in a resale condominium purchase, and should be reviewed by a lawyer before the purchaser makes a firm offer to purchase the resale condominium. Often agreement of purchase and sale include provisions that make the agreement conditional on the purchaser’s lawyer reviewing the condominium status certificate and the purchaser satisfying itself as to the condominium status certificate in its sole and absolute discretion within a certain number of days of receiving the condominium status certificate for review. The condition is put in place to allow the purchaser to enter into an agreement of purchase and sale with the seller but retain the ability to terminate the agreement of purchase and sale without any penalties, in the event the purchaser is not satisfied with the findings in the status certificate. 

Section 76(1) of the Condominium Act, 1998, SO 1998 c. 19 (“Act”), outlines the information that should be included as part of the condominium status certificate. The following is some of the key information that is included in the condominium status certificate:

  • - a statement of the common expenses for the unit and the default, if any, in payment of the common expenses;

The condominium unit owners must pay monthly common element fees which generally includes common elements maintenance, insurance, common element operational expenses, bulk water, heat, air-conditioning, gas and hydro, if applicable. The status certificate outlines the amount of monthly common element fees for the condominium unit, the utilities and other expenses included in the common element fees, and whether the common element fees are paid in full or outstanding as of the date of the status certificate.

  • - a statement of the increase, if any, in the common expenses for the unit that the board has declared since the date of the budget of the corporation for the current fiscal year and the reason for the increase;

The board of directors of the condominium corporation at their annual board meeting vote on the issue of whether to raise the common element fee for the next fiscal year. The status certificate includes information regarding any increases to the common elements fees for the current fiscal year.

  • - a statement of the assessments, if any, that the board has levied against the unit since the date of the budget of the corporation for the current fiscal year to increase the contribution to the reserve fund and the reason for the assessments;

Section 93(2) of the Act requires that a corporation maintain a separate fund known as the reserve fund to be used solely for the purposes of allocating funds to pay for major repairs and replacement of the common elements and assets of the corporation. The condominium corporation collects contributions to the reserve fund from the owners of the unit, as part of unit owner’s contributions to the common expenses as per the recommendation from the reserve fund study that should be updated at least every three years. The status certificate includes information regarding the reserve fund amount at the beginning and end of each fiscal year and whether it is in line with the reserve fund contribution amounts recommended in the reserve fund study.

  • - a copy of the current declaration, by-laws and rules;

A declaration includes information regarding each condominium unit’s legal boundaries as well as its percentage of interest in common expenses and percentage contribution to the common elements. The by-laws and rules also provide useful information regarding policies concerning leasing, short-term rental, pets, and smoking, among other matters.

  • - a statement of all outstanding judgments against the corporation and the status of all legal actions to which the corporation is a party;

The status certificate also provides information regarding any litigation matter that the condominium corporation is a part of, including details of the same. If the condominium corporation is part of a lawsuit, then it will be diligent to inquire as to the condominium corporation’s insurance policy as it relates to expenses for litigation because in absence of such coverage, there may be special fees assessed by the condominium corporation that is to be paid by the unit owners to cover the cost of the litigation, and would result in an increase of the common expenses.

  • - a copy of the budget of the corporation for the current fiscal year, and the last annual audited budget of the corporation for the current fiscal year.

Generally, most condominium status certificate state that the "condominium corporation has no knowledge of any circumstances that may result in an increase in the common expenses for the unit, except for normal budgetary increases", but as is the case with any condominium, circumstances beyond the normal budgetary controls of the corporation could always arise (for example unannounced increases in utility rates or increased labour and material costs). Typically, budgets are increased slightly every fiscal year (i.e. with the passing of each new budget). Hence it is recommended that purchasers always plan for standard annual increases in common expenses of between 3% to 5% to cover the increase in each fiscal year’s budget. 

The foregoing are some of the main issues that should be reviewed in a status certificate as part of the due diligence of purchasing a resale condominium, as it can provide a clear picture of the financial health of the condominium corporation, and assist the purchaser in determining whether they are comfortable in proceeding with the transaction.

If you have any questions regarding the matter, please do not hesitate to contact Maanas Rautela directly at [email protected] or at 905 763 3770 x 232. 

*The material provided in this article is for general information purposes only. It is not intended to provide legal advice or opinions of any kind.

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About the Author:

Maanas Rautela’s primary area of practice is in commercial and residential real estate law, while also practicing in the areas of corporate law, as well as will & estate planning matters. Maanas brings with him a solid transactional foundation in residential & commercial real estate, and franchise law.

Personal Real Estate Corporations – Potential Good News for Realtors
January 28, 2020

Personal Real Estate Corporations – Potential Good News for Realtors

Written by Craig Sandler and Stephanie Furlan

For many years, various regulated professionals in Ontario including dentists, doctors, architects, engineers, accountants and lawyers have been allowed to incorporate and run their businesses or practices through professional corporations. This has allowed these professionals certain benefits such as controlling their income, taking advantage of reduced tax rates and deferral opportunities and income splitting opportunities. While brokerages in Ontario have been allowed to incorporate, individual real estate agents have been prevented from incorporating by the Real Estate and Business Brokers Act (2002) (“REBBA”).

In 2008, legislation was introduced in Ontario to allow real estate agents to incorporate, however it failed to pass. Fast forward to Bill 145, which passed second reading in the Legislature (it has not yet been passed into law), and which amends REBBA in significant ways including renaming it to the Trust in Real Estate Services Act (2002) and allowing real estate agents in Ontario to form personal real estate corporations (“PREC’s”).

The advantages of a real estate agent incorporating a PREC are primarily tax driven. The Small Business Deduction in Ontario allows up to $500,000 of active business income to be taxed at 12.5% and income in excess to be taxed at 26.5%. These rates are significantly lower than the personal tax rates which can be as high as 53.5%. In addition, deferral opportunities arise in that real estate agents could defer personal tax on funds that they retain in the PREC, which they could then use to fund investments, pay expenses or plan for retirement. It is only when they remove those funds from the PREC, by way of salary, bonuses or dividends, will the real estate agent pay tax at the personal tax rate. This gives the real estate agent flexibility to control the amount of income they earn, and thus the amount of tax they are required to pay.

A further advantage to incorporating a PREC is using the tax deferral to plan for retirement. Using retained funds to purchase insurance policies or investment properties could result in lower tax rates at retirement and/or income streams. In addition, should the real estate agent sell the shares of the PREC, they may be eligible for the capital gains exemption.

An additional advantage is in income splitting. Real estate agents may, under certain circumstances, be allowed to sprinkle income to family members, through salaries, bonuses and dividends. Amendments to the Income Tax Act in recent years have reduced these opportunities, but they still exist provided strict requirements and conditions are met. 

A final advantage is to be found in estate planning. Ontario allows a testator’s ownership of shares of a privately held corporation to be placed into a second, or “corporate” Will, which allows the shares of that corporation to be transferred on the death of the shareholder pursuant to the testator’s second Will, without payment of estate administration taxes.  

Disadvantages of incorporating a PREC include, on the legal side, the costs of incorporation and the annual maintenance costs. On the accounting side, there are bookkeeping costs, annual filings of tax returns and preparation of financial statements. There are also the administrative burdens of owning a separate legal entity, such as employer health tax, WSIB, HST and payroll.  

If Bill 145 becomes law, there will, in all likelihood, be regulations passed with respect to who can hold voting and who can hold non-voting shares in a PREC, limitations on the name of the PREC as well as limitations on the objectives and business activities which the PREC may carry out. 

Real estate agents around Ontario are watching the progress of Bill 145 carefully and with bated breath, hoping that it is passed into law.

If you have any questions regarding the matter, please do not hesitate to contact Craig Sandler directly at [email protected] or at 905 763 3770 x 214. 

*The material provided in this article is for general information purposes only. It is not intended to provide legal advice or opinions of any kind.

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About the Author:

Craig Sandler is a seasoned advisor to business in all areas of corporate and commercial law. Acting for large corporations, mid-sized firms and small start-ups alike, he offers informed, practical advice on business sales and acquisitions, commercial agreements, leasing arrangements, corporate maintenance and filings, and everyday business issues.