Developer Budget Guarantee in a New Ontario Condo's First Year

Many buyers of a new condo hear that the builder will cover or limit expenses in the first year. It sounds like protection against surprises. The natural question is what happens in year two, when the builder's promise is behind you and the corporation sets the budget.

This article explains the building blocks that matter: the first-year budget statement, how your share of fees is worked out, and how budgets and special assessments work. The detailed mechanics of any builder promise depend on the law and on your agreement and disclosure documents, so have a lawyer review them before you commit.

What the first-year budget tells you

The disclosure statement a builder gives a pre-construction buyer includes a copy of the budget statement for the first year after registration of the condo corporation. This is the main document that shows what the builder expects the building to cost to run.

Condo fees, also called common expenses or maintenance fees, cover maintaining common elements, reserve fund contributions, and services such as cleaning and building maintenance. When you read the budget, look at what is included, how large the reserve fund contribution is, and whether the numbers look realistic for the building.

How your share is calculated

The declaration sets each unit's proportion of the common expenses. It is a percentage that may vary with unit size, and an owner's share is generally the annual budget multiplied by that percentage. For example, a $1,000 monthly budget and a 5% share means $50 a month.

This means your fee can rise when the overall budget rises, even if your percentage never changes. Changing the proportions themselves needs the consent of 90% of owners, and the declaration must state them.

Why fees can change after year one

A condo corporation creates a budget for every fiscal year. How a builder's first-year promise fits with later budgets depends on its wording and your documents, so it is worth confirming with a lawyer. Owners are expected to review the budget and financial statements, which the board must approve before the annual general meeting.

There is a second way costs reach owners. If there are large shortfalls, the corporation can assess an extra one-time special assessment on each unit, using the same percentage as common expenses, and the board can do this through common expense fees without owner permission.

Whether any legal limit applies to how much fees may rise from one year to the next is not something this article can confirm. It depends on the Condo Act and your declaration, so ask a lawyer before relying on any assumption.

Protections you do have as a buyer

The cooling-off period applies to purchases from the builder and is separate from any status-certificate condition on a resale. Check the current Tarion limit directly, since the figure above is as stated by the CAO.

Questions to ask about any first-year promise

The wording of a builder's promise matters more than the headline. Look for exactly what is covered, for how long, and what happens when it ends.

• Does the promise cover all common expenses or only some items?
• Does it include reserve fund contributions?
• What is the period, and does it start at registration?
• Does the promise appear in the agreement of purchase and sale or only in marketing material?
• What is the budget statement's projected monthly fee for your unit, using your percentage?
• Could a special assessment still apply later?

What to do next

Read the disclosure statement and the first-year budget carefully, and ask a lawyer how your 10-day cooling-off period works in your situation. Take a lawyer through the guarantee wording, the declaration and the budget so you understand both the first year and what could follow. Build a cushion into your own household budget, since fees after year one may differ from the first-year figure.

• Keep every document the builder gives you.
• Ask a lawyer when your cooling-off period starts and ends.
• Compare the budget with your own monthly affordability.
• Ask a lawyer to explain how the builder's promise works under the law and your agreement.

Frequently asked questions