To borrow or not to borrow

Posted on Posted in Uncategorized

It is not a best kept secret, there are Corporations who, for various reasons, find themselves in a financial pickle. When funds are required now, boards are faced with three options:

  • Levy a special assessment
  • Pass a borrowing by-law
  • Increase fees

There are benefits and drawbacks for each method. Boards must assess their population to determine the method that best fits their homeowners.

  • Special assessments are one time payments. They do not require homeowner approval, the payment terms are set by the board, they can offer immediate relief of financial burdens and very often homeowners may be able to get a better interest rate by borrowing an amount equal to the assessment on their own, rather than have the Corporation negotiate an interest rate they have no control over.
  • Borrowing by-laws allow a board to raise funds now and have the loan repaid over a pre-determined time frame. This is beneficial when the loan is required for major repairs and replacements. It means that current owners do not have to bear the entire brunt of a repair that future owners will also have the benefit of.
  • An increase in fees also does not require homeowner approval, even if a budget has already been published. The board has the power under the their governing documents to increase the budget should they find it will not be sufficient to meet their needs.

These options are not without drawbacks.

  • Special assessments place an immediate financial burden on homeowners. Some may not be able to negotiate loans to cover the assessment if it is large. Our older population may not be able to get financing to cover a special assessment.
  • Borrowing by-laws and loans, if they are to recover prior period deficits, are unfair to future owners purchasing into the Condominium Corporation. It forces them to pay for subsidies they did not have the benefit of enjoying. Borrowing by-laws require approval from a majority of the unit owners, and that can be a difficult task.
  • Raising fees creates the same problem as a special assessment. Mid-year budget increases must also be reported on status certificates and can be devastating to those on fixed incomes and fixed budgets.

There is no standard solution to a Condominium Corporation’s financial woe. A board must be proactive in their communications. Hold Town Hall meetings and gather input from your homeowners, let them be part of the decision making process. Boards are elected to represent the homeowners in dealing with the Corporations affairs; it only makes sense that a board should seek input and opinions from the same constituents that elected them.

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