The condominium boom in Toronto continues to move forward, full steam ahead.

While it is always exciting to see new projects, we sometimes lose sight of the fact that "condominiums" as we now know them have existed in Toronto for over 40 years. For many of these older condo buildings, they are now facing the unfortunate reality of an aging infrastructure and ongoing budget deficiencies.

Under the Condominium Act, condominium corporations, while not for profit, should not be operating on a deficit. Monies that are accumulated from monthly common expense payments are supposed to be directed to the condominium corporation's operating account, as well as the reserve fund.

Unfortunately, for many older buildings, it is becoming increasingly difficult to prevent budgetary deficits.

In some cases, with buildings that are in less desirable locations and which have not been properly managed, condominium corporations are facing situations where owners have stopped paying common expenses. This is either because the owners do not have the money to afford the common expenses, or because they believe the units have no remaining equity. This forces the condominium corporation to sell the unit by power of sale to recover the common expenses owing. Unfortunately, if the real estate values are such that the units can either not sell or are sold at a significant loss, it becomes impossible for the condominium corporation to make full recovery. It also becomes difficult for the buildings to convince lenders to loan money for the necessary repairs, as there is no good security to rely on.

We are fortunate that in Toronto, condominium prices have generally stayed strong. However, for those older buildings across Ontario that are less desirable (either because of the location, the general condition of the building and/or ongoing litigation), there is concern that we are going to start to see condominium corporations "terminated" and sold for their land value.

Section 122 of the Condominium Act has a detailed procedure for "terminating" a condominium corporation. I am not aware of any building in Ontario that has followed this procedure (which requires 80% approval by the owners). With that said, it would not surprise me to start seeing an influx of buildings in Ontario that start to seriously consider termination.

While I strongly hope that termination can be avoided in Ontario, this increasing risk does underscore the importance for buildings to grow healthy reserve funds, and to closely follow their reserve fund studies. It also underscores the importance of having strong property management and a well-run condominium Board of Directors.

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This article is intended to be an overview and is for informational purposes only.