Today’s hot real estate market has created many Buyers for few properties with the result being that multiple offers are often the norm. To ensure that your offer will be accepted, a Buyer may submit an offer without the usual clause making the offer conditional on a lawyer’s review of the Condominium’s Status certificate and related condominium documents. While such an offer may improve the chances of your offer being accepted by a Seller, there are risks in submitting an offer without a condition on Status Certificate review. This column will examine the risks of submitting an unconditional offer and discuss what information is contained in a typical condominium Status Certificate.
When a condominium unit is purchased, the Buyer acquires the unit as well as a proportionate interest in the condominium corporation. The purchase price may also include a locker and/or a parking unit. In order to ensure that both the condominium unit and the condominium corporation are in good standing, a prudent Buyer should, when possible, make its offer conditional on a lawyer’s review of the Status Certificate and related condominium documents. With a conditional offer, If the lawyer or the Buyer is not satisfied with the contents of the Status Certificate, the Buyer can cancel the transaction and get back its deposit. Without such a clause a Buyer may not be able to cancel the transaction and may be forced to buy the property with any defects or deficiencies revealed in the Status Certificate.
The Status Certificate is a set of documents issued by the condominium corporation discloses important information about the condominium unit and the condominium corporation itself. It is a snapshot in time of the current state of the unit and condominium building as a whole. The Status Certificate and related condominium documents typically indicate:
- the amount of the monthly common expenses and whether or not the Seller is in arrears of the common expenses
- the legal description of the unit and any parking or locker units
- whether or not the parking or locker units are owned or are exclusive use
- the amount of the condominium corporation’s reserve fund which is a fund necessary for major repairs or replacements and whether or not the reserve fund is adequate
- whether the condominium corporation has conducted a Reserve Fund study
- whether the condominium corporation is contemplating an increase in the monthly common expenses or a special assessment to pay for unanticipated expenses
- whether the condominium corporation is a party to any lawsuits or litigation
- whether the budget of the condominium corporation is accurate
- when the last set of audited financial statements have been produced
- whether or not the condominium corporation has a record of the unit being subject to a section 98 Agreement relating to additions, alterations or improvements to the unit or common elements
- all of the rules on the condominium including, rental restrictions, pet restrictions and smoking restrictions
When an offer is conditional on a lawyer’s review of the Status Certificate, the lawyer will review the Status Certificate as well as all of the other important documents that should accompany the Status Certificate including the condominium’s Declaration, By-laws, Agreements, Budget, Reserve Fund Study, Rules and the latest Audited Financial Statements. Based on the information provided, the lawyer and the Buyer can make an informed decision as to whether or not to proceed with the purchase of the condominium in which case the Buyer can waive the Status Certificate condition thus making the deal firm.
By failing to make the offer conditional on a Status Certificate review, a Buyer may be going in blind without knowing the full scope of the problems that may exist with both the unit itself or the condominium building as a whole. For instance, following closing, a Buyer could be faced with a number of costly problems, including:
- significant increases to monthly common expenses
- special assessments against the unit owners which is a lump sum payment required to pay for repairs to the condominium building
- costs to repair a condominium building which may be in need of costly repairs such as water proofing or underground garage repairs
- costs to restore unauthorized repairs which may have been made by a previous owner without the approval of the Condominium Corporation
- future unmarketability or decrease in the value of the property due to age or deterioration
Unfortunately, due to the current market, many Buyers may be getting caught up in the buying frenzy and are submitting unconditional offers without realizing the risks of doing so. As a result, a Buyer who submits an unconditional offer may be unable to cancel a transaction and be forced to close only to be faced with unexpected costs following closing. Realtors representing Buyers who are considering making an offer on a condominium should inquire with the listing agent as to the availability of the Status Certificate so that it may be reviewed by the lawyer prior to submitting the offer. This will allow the Buyer to make a somewhat informed decision even without a conditional offer being submitted.
Buyers and realtor need to be made aware of the risks of making offers which are not conditional on Status Certificate review. Failing to plan ahead can result in unwanted surprises and costs.