The Risk of Buying Property without a Status Certificate Review
In today’s hot real estate market, it is not uncommon for a seller to receive multiple offers. To compete with other bidders, a prospective buyer may be tempted to make an offer without including a condition that a lawyer review the Condominium’s Status Certificate. At SorbaraLAW, we caution against this.
When you purchase a condominium unit, you also acquire a proportionate interest in the condominium corporation. For this reason, it is prudent to ensure that the Condominium Corporation is in good standing. Careful lawyers and real estate professionals will recommend to potential buyers that the Agreement of Purchase and Sale include a condition allowing the buyer and the buyer’s lawyer an opportunity to review the Condominium’s Status Certificate.
The Status Certificate is essentially a snapshot of the current financial and legal status of the residential unit and the condominium as a whole. Among other items, the Status Certificate discloses:
- the condominium’s financial health including confirmation on whether the current unit owner is in arrears of the monthly common expense fee and the state of the Reserve Fund;
- the condominium’s legal liabilities;
- agreements that the condominium has entered into with the city or third parties that may affect the unit being purchased or the lifestyle of the unit owner; and
- any rules and restrictions that may affect a unit owner’s use and enjoyment of the unit or common elements (i.e. amenity spaces).
When our lawyers receive an Agreement of Purchase and Sale with a condition to review a Status Certificate, we start by reviewing all the documents that accompany the Status Certificate form. This includes a review of the Condominium’s Declaration, Bylaws, Agreements, Budget, and Reserve Fund Study.
The Declaration creates the Condominium Corporation. This document defines the unit’s legal boundaries, breaks down common expenses, discusses parking arrangements and use of amenity spaces. The Declaration also outlines the maintenance requirements of each unit and the respective maintenance and repair obligations of the unit owner and the Condominium Corporation.
In addition to reviewing the Declaration, we encourage buyers to review the Condominium’s budget and Reserve Fund Study to confirm that the Condominium Corporation is adequately planning for future major repairs and replacement of the common elements. If the Status Certificate reveals that the Condominium Corporation is in poor financial health, unit owners may be faced with:
- significant increases to the monthly common expense fee;
- a Special Assessment (lump sum payment in addition to the monthly common expense fee) issued against all unit owners;
- a decrease in the unit’s market value due to deteriorating physical conditions;
- problems with lenders in the event that the unit is to be refinanced; or
- increased structural issues with the unit, the building, or the common areas.
We encourage you to stay informed about your real estate purchases. SorbaraLAW has a wealth of experience in navigating through status certificates and our lawyers are available to assist you as needed.
This article was written by Slonee Malhotra, a qualified real estate lawyer with SorbaraLAW. Slonee can be reached at (519) 741-8010 ext.258.