Blog PostApril 16, 2020 - Educational
Condo Finances and COVID-19
The COVID-19 pandemic is something no one could have predicted or budgeted for, and we are all struggling in one way or another. Information and our country’s understanding of the impact of this virus on the economy changes daily, and the government is regularly enacting new legislation to support Canadians during this time of uncertainty. It is unknown if the Condominium Act will change as a result of the pandemic, but until then, the existing Condominium Act still needs to be followed.
There are several financial issues that Condominiums may face during this challenging time.
Collection of Monthly Fees
It is crucial that monthly condominium fees continue to be collected from unit owners. It is not advised to defer or return condo fees for any units. It is still unclear how long this current situation will last, but it is important that the corporation maintain its cash flows. It is essential that normal procedures for the collection of fees are still adhered to and liens are put in place within three months of the arrears arising to ensure the Corporation protects its interests.
Some unit owners believe that condo fees can be deferred, similar to a mortgage or rent, however this is not the case. Condominiums have an obligation to continue operations and maintain the common elements. It is vital that regular maintenance items such as elevators, fire alarm system maintenance and any repairs that ensure the safety of the owners are maintained. Some expenditures could in fact increase during the pandemic, such as costs for extra sanitization and increased use of utilities now that more residents are staying home. If the Corporation does not continue to regularly collect the fees from unit owners, they could quickly face cash flow concerns which could result in the inability to pay for these essential expenses.
The corporations that will have the most difficulty during these times will be the corporations that were already facing cash flow problems going into the pandemic and don’t have a sufficient general fund balance to endure emergencies. Boards will find it difficult to increase fees or levy special assessments due to the hardship on the owners.
Some tips on how to increase your general fund cash flows are:
- Decrease or eliminate non-essential spending. For example, defer window washing or landscape improvements.
- Decrease contributions to the reserve by means of an updated Notice of Future Funding. See additional info below.
- Contact a financial institution that specializes in condominium borrowing to obtain a loan or short-term cash flow solution, as interest rates are low right now. If you are considering borrowing, you must remember that a borrowing by-law will have to be approved by the owners if the corporation does not already have one in place. A conversation with your lawyer is recommended before borrowing. This solution may not be a realistic option for all condominiums. To date, lending institutions don’t have a vehicle to offer operating loans or lines of credit to condominiums. We understand they are researching how this can be done and hopefully they will have a resolution soon.
Now, more than ever, it will be tempting to borrow from the reserve fund in order to maintain general fund operations. Even in this unprecedented time this is still not permitted. Per the Condominium Act, those funds are meant to be used solely for major repairs and replacements of the Corporation’s common elements. However, an acceptable option may be to reduce the monthly contributions to the reserve.
It is important that any modification to the Corporation’s reserve fund plan is properly documented. We recommend contacting your engineer and have a revised Notice of Future Funding prepared in order to have your monthly reserve fund contributions temporarily reduced along with providing a plan for adequate funding going forward. The revised plan could include a reduction to the monthly contributions as well as an adjustment to the Corporations spending priorities. This will ensure that you are still adhering to the Condominium Act, while allowing for increased cash in your general fund.
Not-For-Profit Information Returns
The federal government has given extensions to filing deadlines for various taxes. However, it has not made any concessions to Not-For-Profit Information Returns. It is important that if your Corporation is required file this return that it is still filed within 6 months of the year end in order to avoid penalties and interest. If you are unsure if your corporation is required file this return, please contact your auditor or your property manager.
This is a difficult and stressful time for everyone. It is important to consult with professionals that specialize in condominiums to assist and guide you through this uncertain period. We are all in this together, and together we can get through this.
At RLB, People and Condos Count!
This article was originally published by RLB Chartered Professional Accountants on April 15th, 2020: https://www.rlb.ca/condo-finances-and-covid-19/