What is a Status Certificate
A status certificate is a document issued by the Condominium corporation’s management or board upon request by a prospective purchaser. It is an essential document in a condominium transaction because it provides a snapshot of the corporation’s financial and legal status at purchase.
Pursuant to section 76 of the Condominium Act, 1998 S.O. 1998, c.19, a status certificate must include, among other things the current common expenses; any arrears or unpaid fees by the unit owner; details regarding ongoing or pending legal actions involving the condominium or its corporation; rules and restrictions regarding the unit; and the corporation’s current financial statements.
Prospective purchasers, through legal advice can use these documents to assess the financial viability and governance of the condominium corporation to help purchasers make an informed decision of whether they wish to purchase the unit.
Purchaser’s Right to Review
The opportunity to review a status certificate is the purchaser’s right. Purchasers must ensure that in a resale condominium transaction the Agreement of Purchase and Sale (“APS”) includes a clause which permits makes the APS conditional upon the purchaser’s solicitor reviewing and approving the status certificate. A conditional Status Review clause protects purchasers by allowing them to walk away from the property with no penalties if the status certificate raises significant concerns.
Timing and Delivery Requirements
Section 76 of the Condominium Act requires condominium corporations to provide the status certificate within 10 days of a written request. The conditional right to review clause should allow for sufficient time to receive and review the status certificate. However, delays can arise; if the purchaser does not receive the status certificate within the time required by the conditional clause in the APS, the purchaser will have to either delay waiving the condition and request to amend the APS or, may choose to walk away from the transaction altogether.
It is generally best to obtain a recent and complete certificate, meaning a certificate that provides a snapshot of the condominium corporation within the last thirty (30) days. As a seller, it may not be a legal requirement to provide the purchaser with a status certificate; however, obtaining one pro-actively will ensure the transaction is not unnecessarily delayed and avoids the risk that the purchaser walks away from the transaction due to any delay in obtaining the status certificate. Typically, a seller should order the status certificate immediately upon listing to ensure a quick sale of the unit.
Contents of a Status Certificate
The purpose of a status certificate is to provide transparency in a transaction where the purchaser often has significantly less bargaining power than the condominium corporation. Reviewing the status certificate before you enter into a binding agreement of purchase and sale will prevent unexpected financial liabilities or operational issues that may arise upon purchase. Typically, lenders will require purchasers to obtain a status certificate before entering into any mortgage financing.
The status certificate’s importance comes from its role in due diligence. It serves as a powerful disclosure tool which allows the purchaser to assess the risks associated with their prospective purchase.
There are seven (7) key areas which must be assessed.
Condo Fees and Common Expenses
Details of monthly condominium fees payable by the unit owner and what these fees cover are essential to understanding the total cost of the condo unit. Purchasers must identify what their monthly expenses cover and how much per month they are liable for.
Reserve Fund and Special Assessments
A reserve fund sets aside money from the condo fees and common expenses to cover the costs of major repairs and replacements of the common elements of the condo. Special assessments are outstanding or planned fees which will be paid by the unit owners for unexpected repairs or upgrades. Purchasers ought to consider the strength of the reserve fund to cover expenses without requiring special assessments so that unit owners are not saddled with additional costs on top of their mortgage and condo fees.
Financial Health
Purchasing a condo is quite different from purchasing a home; a condominium is owned and operated by a condominium corporation. Since you are effectively entering into a long-term contract with a corporation, it is important to assess the long-term financial sustainability of the corporation. Purchasers should review the current budget and recent audited financial statements to gauge the financial health of the corporation.
Legal Issues
Lawsuits and potential litigation present significant risks to purchasers who may be required to pay special assessments in order to resolve these litigious matters. Purchasers must consider the potential claims against the condominium corporation and the likelihood that it will affect their expenses.
Rules and Restrictions
Condominiums are governed by their by-laws, declarations and rules that govern the unit use of all unit owners. Condominiums, through these mechanisms, can restrict your enjoyment of the unit by imposing pet restrictions, noise regulations, rules regarding rental properties, parking and locker rights, and other operational policies. Purchasers should assess these rules and determine whether the restrictions imposed by the Condominium will significantly limit their enjoyment of the unit.
Insurance
A status certificate will also include information regarding insurance for the condominium corporation and the specific unit. If there are significant gaps in their coverage, Purchasers should consider obtaining additional insurance.
Owner Arrears
The status certificate also provides information about the party from whom you are purchasing the unit. The previous unit owner may have failed to make regular condo fee payments. Purchasers may not wish to proceed with the transaction if they are aware they may be liable for the previous owners’ arrears.
Impact on Financing and Closing
Status certificates play an important role in mortgage financing. Mortgage lenders rely heavily on these documents to assess the risks of lending for a specific unit. If there are issues identified in the status certificate, the mortgage approval process may be significantly delayed.
Lenders review status certificates for the same things purchasers do. If a status certificate poses potential risks, the lenders may choose to withhold approval, impose stricter lending conditions, reassess the value of the property or decline to finance the transaction altogether. These actions by the mortgage lender can delay a transaction and interfere with closing dates, placing the purchaser at risk of breaching the Agreement of Purchase and Sale, resulting in a potential loss of the deposit and liability for damages.
Risk Mitigation Strategies
To address the risks associated with status certificates, parties to a condo resale transaction should ensure the following when entering into an Agreement of Purchase and Sale:
- Ensure that the Seller has proactively ordered a status certificate when listing the property;
- Purchasers should retain a real estate lawyer to review the certificate within the conditional period;
- Lenders should be given access to the certificate as early as possible in the financing process;
- Purchasers should secure conditional mortgage approval pending review of the status certificate.
In condo purchases time is always of the essence, meaning that any deadlines imposed in the APS must be met. The failure to meet a deadline will result in a breach of the contract. It is important that upon entering into a condo purchase, timelines are closely monitored and steps are taken immediately to ensure all conditions and deadlines are complied with.
Contact Us
If you are purchasing a condo or have recently entered into an Agreement to Purchase a condo, please contact Jonathan Dippolito by email at jonathan@durhamlawyer.ca or by phone at 905-668-4486 ext. 3229.
This blog was co-authored by articling student Jason Corry.
