What The Board Of Directors Spends Your Money On

If you don’t like it, then do something about it.

The only thing worse than a board of directors at a condominium who spends the condo corporation’s money on inappropriate items, is a person who comments, complains, critiques, but doesn’t run for the board, or offer any support.

The board of directors in your condominium are like the elected city council of your city; they’re there to serve your needs, to push their own agendas.

Well, in theory, at least…

CondoBoardTable

Maybe I’m a jerk.

Or maybe I’m boring.

Or maybe I’m just too cynical for words.

But when I see the bulletin in my elevator advertising the “End Of Summer Barbecue,” I can’t help but wonder why the condominium corporation is spending money on that, rather than adding more man hours for the superintendent so the garbage chute doesn’t get full on weekends.

A client of mine, who shall remain anonymous, told me he’s experiencing the very same thing in his building.

His words: “These barbecues are put on by people who have no friends, and think that the condominium is some sort of adult playground where you can meet people.  If you want to make friends, join a club.”

Harsh!  Now I don’t feel like such a jerk.

But there’s two sides to this argument:

1) A condominium is a “community” of individuals, and as such, there should be an effort made to ensure that people get along, are able to meet one another, and have a forum for interaction.

2) A condominium is shared living among individuals, who own their own units.  All expenses that the condominium corporation incur should be related to maintenance and upkeep of the building for the good of ALL residents; not a selected few.

To be honest, I’d probably have to agree with the latter.

Maybe the BBQ only costs $500, but I still think that’s discretionary spending.  You don’t need to spend $500 on hot dogs and baby carrots, but you need to spend $500 on a service call for the elevator when it breaks down.

While I don’t want to live in a building of hermits where nobody says, “Hello,” I also didn’t move here so I could play checkers on Thursday nights with the guy on the 20th floor, especially if the condominium corporation is paying for it.

The argument has a parallel to politics, where the government can spend money how they see fit.

For example, let’s say the municipality spent money on an art festival, rather than repairing roads.

One person might suggest that not ALL money should be spent on infrastructure, and some of the money has to be spent on culture.

Another person might suggest that to pay off-duty police officers to stand around and direct traffic around a major intersection where hippies are playing bongos, rather than laying tracks for a new subway, is waste of money.

I guess by the way I describe it, you know where I stand.

And the parallel to living in a condominium, and having the board of directors “govern” with your money, is a solid one.

I’ll admit – a condo board has a thankless job, that is very difficult, and only made harder by people that are always complaining.  And if you want to purchase a new piece of equipment for the gym, you can’t wait for 500 people to vote on the matter.

But I suppose the overall agenda of the board is apparent in many buildings, and that’s where you run into trouble.

Think back to the email I received, and blogged about, from a resident at 77 Lombard Avenue.  He told me (his words, not mine, and not to be taken as pure fact) that the board of directors was obsessed with making the building look “new” again, and they wanted to “compete” with younger buildings, that were flashier, and had superior amenities.  Apparently, the board here spent a ton of money on their amenities (both facilities and common areas), and maintenance fees were raised as a result.

If you, or the person down the hall from you, didn’t agree with the direction the board was taking, there’s only so much you can do about it.

On the flip side, you have buildings where the board of directors refuses to spend a penny, and the common areas suffer as a result.

I can think of a few buildings in my area that haven’t been touched in twelve years.

The carpets in the hallways, the wallpaper, the light fixtures – they’re all ugly as hell, and extremely outdated.  The board refuses to spend a nickel.

Now is that a bad thing?  Or is it what you want?

Again, every condo owner is different.

I wouldn’t want my condo spending money like 77 Lombard is rumoured to have spent (again, unconfirmed), but I also wouldn’t want to see the same features in my building that were present in 1998 when the place was completed!

There is no “official plan” of how to run a condominium.

There is no handbook, nor a guide book.

The board, whether it’s made up of five experts, or five novices, must fend for themselves, with input from property management, and plot a course of action.

Now we all remember what happened at The Printing Factory Lofts earlier this year.  Facing a $2 Million repair bill, and with a lawsuit pending that would likely see them victorious in 2018, the residents voted, at the behest of the board, to borrow $2 Million from Laurentian Bank to pay for the repairs now, rather than issue a special assessment for the $2 Million, or around $10,000 per unit.

That decision ended up causing the three major mortgage insurers – CMHC, Genworth, and Canada Guaranty, to blacklist the building for a period of time (apparently now you can get insurance).

The decisions that the board of directors make aren’t always refined to whether to purchase a treadmill or a stationary bike, and sometimes they can have major consequences.

For the most part though, it’s just about simple budget management.

I was in 318 King Street East last week, and I was pleasantly surprised to see that they have a part-time concierge at the front desk.

The hours made sense.  The concierge doesn’t need to be there from 2am to 6am during the week, since virtually nothing goes on during those times.  You might get one person leaving for the airport, but what really goes on during those hours?

I don’t have the hours in front of me, but let’s assume that they equal out to about HALF of the 168 hours in a week.  Assuming a concierge makes at least $20 per hour, the condo is saving $1,680 per week, or $87,600 per year.

That’s a LOT of money for a building with only 215 units, and with virtually no amenities in the building, I don’t know if a 24/7 concierge is warranted.

Now just to argue the other side of the coin, because I can – let me suggest that to some residents, you are paying for “peace of mind” and security.  Having a concierge 24/7 makes you feel more secure, and thus you don’t mind paying for it.

Personally, I think that’s silly.  You have a lock on your front door, an in-suite alarm, and a lock on the front of the building.  What is a guy, who is probably texting on his phone, going to do to stop “something bad” from happening?

Again, to each their own.

Some people think that a 24/7 concierge is a massive “plus,” and some would actively seek out a building with no concierge at all, if it meant fees were kept low.

I’ve seen some buildings scrap the concierge altogether.

Look at 138 Princess Street.  You walk into the lobby, and there’s a massive desk, but nobody sitting at it!  Clearly the developer assumed there would a be a concierge, but alas, the building decided not to have one.

Not all condominiums are the same, and nor should they be run the same either.

But the board of directors at your building is entrusted with the power to make major decisions, both financially and in terms of rules and regulations (ie. they changed the party room hours so it closes at 12pm now instead of 2am), and you won’t always agree with those decisions.

If my building decided that “steak and lobster make-a-friend night” was going to be a bi-weekly event, then I’d have a serious problem with it.  But for now, if they want to spend a few bucks on get-togethers, I’m not going to mind.

But by the same token, I worry about buildings where they’re obsessed with keeping fees low, or not raising them at all.

Just as certain as the fact that we get a year older, every year, you can be assured that “stuff costs more.”

The rate of inflation might only be 1%, but doesn’t that mean that condo fees should go up 1%?

Water, natural gas, labour – these things go up every single year, so if a building sees their expenses go up 5% each year, then why don’t fees rise in tandem?

A colleague of mine asked me the other day, “My friend is upset that her condo is raising fees by 4.5%, and she’s getting a group together.  What do you think they should do?”

My response: “Go see a movie.”

That’s a group activity, and it’s more productive than complaining about fees increasing in a time when virtually every expenditure in every building is going up as well.

If the board of directors in my building tried to appease residents with some sort of “maintenance fee freeze,” I would worry that they don’t understand economics and finance, and don’t know how to read a balance sheet.

A board of directors that spends unnecessarily is just as bad as a board of directors that believes freezing fees has no consequence.

I guess my cynical side will say, “The average condo owner only lives in a building for 3 1/2 years, so it can’t be that bad.  You’ll move out before anything really affects you.”

Remember that you can request the minutes for every single board meeting, and as per law, the board has to hand them over.  So if you want to see how the board spends your money, you can.  But you can also see how they voted, and what they talked about.

Or, you can just relax and live your life.  The choice is yours…

34 Comments

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  1. PinkLucy says:

    Social events don’t have to cost the corporation money. I know of one building that hosts frequent, and popular, social events — they approach local food and drink establishments to sponsor the events. I know of others that charge a fee to attend events and others that organize potlucks. Get a social committee together and get them brainstorming; they’ll come up with ideas so that costs aren’t covered by maintenance fees.

  2. ABB says:

    My building spends over $10,000 on a fully catered Holiday dinner buffet and piano-player plus DJ in the 2nd or 3rd week of December. We have an overall budget of $3.1 million (460 units). No one complains, they stuff their faces and praise the board for a “great party” when in fact the board is just buying their popularity. It’s disgusting to witness.

  3. Steve says:

    My only intention was to point out that some people buy real estate with the clear expectation that prices always go up and usually faster than inflation (we know this is not true). In any mature “bull” market (like the last few years in RE and stocks) people come to believe that they are bound to make easy money, so taking on big debt seems worth the gamble. They are speculating, and all is well until the music stops. Then those holding huge debts get caught out.
    (Think 1989).

    So, even though I love houses, lofts, and well designed apartments, I believe the current market is dangerously expensive. As for Turner, he made a fortune in RE, so I think he knows a thing or two about good value and market dynamics (although, I would caution that today he is involved with a wealth management firm and his blog is designed to attract investors).

    1. Chroscklh says:

      Is okay to see the modest correction. Only few people get hurt. Happen before and no crazy bankruptcies, default rate, fire sales. What a most a likely – couple buy house $500k 5 yrs ago, guy say to wife “shoulda sold in 2014 at $750k! now only get $600k!” – did guy “lose” $150k or no? Did house actually drop in value 20% or no? Maybe if guy bought house day before at $750k, 5% down – he worry. Maybe if guy have HELOC up to 90% or other credit, he worry. But if economy improving, he working, still make the money – he think twice about the moving. If economy no good, no interest rate hikes, helps to stave off the lower price. No? I probably too optimist – as I ‘long’ real estates, so I a bias, but I have to think the bear-bears, the ones who missed out on gains by renting (“And I’m fine with that! I like my flexibility to be homeless at drop of hat” – haha, you lie like Putin mother who say she no hate him), and the fans of Gorp Turner, also be the bias. Is like famous story of Klorhorcse Borjacov – he say “I live in tree because is free, I dont need house.” – then we go to hospital to have frost-bite hand remove, guy cuts down tree to build garage because is free. Now Klorhorcse homeless and handless (this sound more poetic in my language)

  4. Steve says:

    “False presumptions”, like land transfer tax for example, and brokerage fees when selling 3 to 5 years later? As for your $75K ahead, that presumes finding a buyer for an older condo among new ones sprouting up almost weekly. I would suggest that is presumed “paper wealth”.

    I am not against RE, but I wonder about the wisdom of buying when one is likely to move in a few short years. Is it worth the hassle? Plus, would you buy at today’s prices and bet selling in 4 years from now would yield a profit?

    1. Kyle says:

      I’m not trying to be a dick, in fact i agree it isn’t always wise to buy something that you only plan to own for 3.5 years. But to answer your question, i would be buying at today’s prices if i wanted a house to live in – Full stop. Houses are not speculative investments, and if your only concern is the market price 1, 2 , 3, 4 years from now, then you’re missing the whole point of buying a house to begin with.

      You keep saying you are not against RE, but then you consistently post unsubstantiated, inflammatory, misinformation in a eerily Garth Turner-esque style, such as:

      “Steve September 10, 2014
      The market has been expensive for so long that every seller now thinks their place is worth a king’s ransom … thus, the outrageous asking prices. Reality says markets don’t go up forever, and people are already mostly tapped out. It’s seller beware time.”

  5. Steve says:

    Sorry Kyle, but I was not trying to misinform anyone. What would the monthly payment be on the purchased condo? A lot more than $1500, that’s for sure. That extra monthly could have been invested in an index fund. You get the picture (I hope).

    1. Kyle says:

      Your average monthly cash outflow from owning is 88K / 42 months or 2100/mth, which leave you with $500 or $21K over the 3.5 years. Sorry but unless you’re taking on a ridiculous amount of risk you are not going to turn 21K into 75K after-tax in 3.5 years. Do you get the picture now?

      1. Geoff says:

        You know what’s interesting Kylie is that you’re not considering it risky at all to purchase real estate.

        I suggest you try talking to people instead of talking down to them. No need to be rude like you come off.

        1. Kyle says:

          My name is Kyle not Kylie. I fully appreciate the risk in real estate, and have never said that it only moves up. I’ve always advocated that people should buy a house to live in and not as a speculative investment.

          Frankly i can’t stand the spreading of misinformation and empty propaganda. This is the one blog where intelligent, informed discussions about Toronto real estate happens, where those that make statements are prepared to back them up. So when i see the same old empty Garth Turner rhetoric being regurgitated here, you bet i’m going to call it out. It may come off as rude, i prefer to call it blunt. Anyhow point taken, i’ll challenge less forcefully next time.

          1. Geoff says:

            sorry Kyle I tapped that out quickly.

            The irony of saying I’m a Garth Turner supporter is not lost on me. That blog is all about you are either bull or bear. This site suggests shades of grey.

            The fact that one should be able to see both sides of an equation, and understand risk and probability and most especially confirmation bias, is not lost on me either. There is no logical reason to assume that because housing prices have dramatically appreciated in the last 5 years, that such trends will continue either. They could plummet. It’s in the range of possible outcomes.

            Given that, to me, buying a condo to live in for only 4 years at a time is speculative investing. Realistically I think you need to live in a place you buy for at least 5 years and most likely greater than that. Others may disagree of course and vote with their feet. Such is life.

          2. Kyle says:

            No worries, I assumed it was either a typo or a new commenter named Geoff. I was not calling you a Garth Turner supporter.

    2. Kyle says:

      And as for misinformation let’s take a look at your statement:

      “People who moved every few years used to rent apartments, putting down only first and last. Today, they seem content to pay all kinds of fees and taxes above huge mortgages to get in and out of newer units marketed as condos.”

      Do you not see how that is loaded full of completely false presumptions and assertions? If not, let me help you then:

      1. When you say “to pay all kinds of fees and taxes above huge mortgages”, you are presuming that people are pissing away all kinds of money to live in in “newer units marketed as condos”. As i’ve proven with realistic numbers, people who bought are actually $75K ahead after 3.5 years and as a bonus they got to live in “newer units marketed as condos”

      2. People who buy condos, generally don’t set out looking for a place for the next 3.5 years as you assert. Most would have longer time horizons, but many do end up moving after a short time horizon, because thanks to 7-10% increases in prices, leveraged to 95%, and the mortgage principal that they’ve paid down, they find after 3.5 years they are sitting on a big honking wad of equity that renters could only ever dream of saving.

      1. Libertarian says:

        Aaaahhh, if life were only that simple. We’d all be gazillionaires!

        1. Kyle says:

          Actually over time, it has been that simple for most households. Maybe not to be a gazillionaire, but on average those in Toronto that own real estate are at least half-millionaires.

          “The report also found that disparities in wealth for households in Canada’s three richest cities — Vancouver, Toronto and Calgary — are rapidly vanishing. Average household net worth in each of those cities is now within $29,718, or 4.4 per cent, of each other. In addition, the average household has $533,172 worth of real estate holdings.”

          http://www.timescolonist.com/business/canadians-net-worth-up-eight-per-cent-rebounding-well-from-downturn-1.1306562

          1. Geoff says:

            One doesn’t need an mba to know that you can manipulate net worth in a variety of ways, mainly depending on how you record your primary asset (at historical cost as per GAAP rules, or do you guess at what you think you can get for it today?).

            A half millionaire on paper is not the same as a $500,000 portfolio of S&P500 companies. It’s not, and anyone with any age and experience will know the difference between those two numbers.

            Second you find a survey to say anything you want it to.
            “Research Update: Average Canadian Household Debt Up, Buoyed by Alberta, B.C. Levels”
            http://rates.ca/blog/research-update-average-canadian-household-debt-buoyed-alberta-b-c-levels/

            Basically, there’s people who can afford to buy homes and choose not to (valid choices by the way!) and there’s people who can’t afford to buy homes and choose to (risky at best).

          2. Kyle says:

            No doubt real estate is going to be valued less precisely than an S&P portfolio and is less liquid…But countering that, real estate is also historically way less volatile. While it’s fair to call into question the exact amount of contribution, it is pretty clear that real estate has been a major driver of wealth creation for those that own it.

            FWIW here is the full report, with many more interesting findings.
            http://www.environicsanalytics.ca/footer-menu/news/2013/07/26/wealthscapes-2013-reveals-rising-fortunes-among-canadians

            It was created by gathering and analyzing statistics, not from surveys.

  6. Jason H says:

    Welcome to the GTA.

    1. Jason H says:

      I probably should of added. Where sense of community is as rare as big foot.

  7. Steve says:

    “The average condo owner only lives in a building for 3 1/2 years … ” Wow! Can this be true?
    Incredible. People who moved every few years used to rent apartments, putting down only first and last. Today, they seem content to pay all kinds of fees and taxes above huge mortgages to get in and out of newer units marketed as condos. No wonder out debt to income ratio is sky high!

    1. Kyle says:

      And your the problem with this is? Instead of spouting misinformation, how about actually comparing numbers over the last 3.5 yrs:

      The average condo was 295K in Mar 2011, and is now 353K in Aug 2014. A purchaser of that condo with 5% down would now have 100K in equity (353K market value – remaining principal of 253K). Over that time, costs would have been about 88K (15K in maintenance – assuming .60/sq ft, 7K in property tax based on the avg prices above, 8K in LTT and legal, and 58K in mortgage interest @ 3.44%). At the 3.5 yr mark that owner is up 12K

      By renting at 1500 per month, at the 3.5 yr mark that renter would be down 63K

      Being ahead by 75K over 3.5 yrs, seems like a pretty shrewd move to me. Sure your bear preachers will trumpet that Debt to Income is at record levels, but what they fail to mention is that (at least for those that own Toronto real estate…for renters, ummm not so much) is Net worth to Income is also at record levels.

      1. Geoff says:

        I don’t know why there’s a need to call people bears and bulls. I’m a homeowner now who rented for 8 years too. There’s merit on both sides of the fence.

        I will say that to go to the considerable expense of lawyers, Land transfers, realtor fees, inspections, status certificate purchases, etc just to live in a condo for 3.5 years is not good economic sense. You can’t count on home appreciation like a certainty.

      2. jimbo says:

        15k in maintenance over 3.5 years works out to $357.14 a month and at $0.60 a sq ft means 214 sqft

        Is the above correct? If so should I be expecting to pay over $1,500 a month for a bachelor apartment in Toronto tomorrow?

        I think real estate fees for selling would be around $18,000

        Is it worth averaging the age of the buildings and then get the standard deviation to determine the probability a special assessment could be placed on your unit?

        Everything up until, over that time is pretty bang on.

        1. Kyle says:

          600 sq ft x .60/ sq ft x 42 months = 15120

          You’re right about the commish, so can we agree that short of getting a 57k special assessment, youowning was favourable?

          1. jimbo says:

            I multiplied when I should’ve divided. 600 sqft seems reasonable.

            I wouldn’t buy any condo over 10 years old out of fear of an assessment. As for buying a newer one at this point, I don’t think so no (in Toronto). When I moved from outside of Toronto to Trenton I didn’t want to pay $140,000 for a house in a community where factories were closing and unemployment was climbing. Verdict, after 7 years I missed out on a $40,000 profit. Fees for selling are covered for me. Rent was incredibly cheap there so I don’t feel too bad about it.

            My reasons now:
            I live in Halifax now and pay $1150 a month for a brand new apartment (1263 sqft) everything except cable and electricity is included. I average $40 a month for electricity (rates here are over 14 cents a kW hour all the time…) So $1190 all in.
            A condo in this part of the city same size sells for $300-$400k with a maintenance fee of 400-600 a month. So in Halifax anyway def not.
            Houses in Halifax are older and not insulated very well, they are also electric heat or oil for the most part and that cost a lot of extra $.
            Also I move every 3-5 years and even though my fees are all paid for, I feel most places I could live just don’t have the opportunity costs to give a significant advantage. Ie. I buy in cold lake at $400k and oil prices drop, I would be pooched.

            As for buying in Toronto now, if I was staying for over 10 years I think I would if I found something I really liked. Hind sight for the example you gave is accurate given 6.5% Ann Apr which fits. I felt there wasn’t room for housing to grow in 2010, obv I was wrong and could be wrong again but I don’t feel after 10 years my place would appreciate much above inflation at this time.

            All that being said, I wouldn’t work or live in Toronto if I had a civilian job in my trade. I make over $70,000 a year and hate paying 20% of my gross pay just to have a roof over my head. I can’t imagine paying ($1,800 a month for a $360k mortgage at 3.44% 25 yr) 31% of gross pay before prop taxes, heat, elec, maint, etc. I would like to think I’m smart enough to relocate to a state in my field and retire in either Can or the US. Top places to live are Colorado and Utah. Both have high tech industry bigger than Waterloo, have median family incomes over $120k and you can live in a detached home for $200-300k.
            To me the argumentisn’t sticking with the rising house costs, it is more about looking at the individual situation and moving to a place where you can work in your field, live in a great or reasonable house for a reasonable price, invest the unused house payment income, travel and not have to do it with the HELOC.

            You are correct though, the person in your example made a mint. There are many people that experienced what you wrote as well.

            How much higher can the price go in 5 years and people still have the ability to move into their next housing phase (smaller or larger)?

  8. Paully says:

    I was on the board at my condo. If you want to know what being on the board is like, just sharpen a pencil and stick it in your eye!

  9. homeless turned homeowner says:

    regarding 77 Lombard Avenue have your client tell his condo board that no amount of money is going to change the fact it is located across the street from a homeless shelter and that they need to make sure the reserve fund is adequate instead of wasting it

    1. homeless turned homeowner says:

      *homeless women’s shelter* in case that makes a difference

  10. Jackie says:

    My condo has an annual bbq every summer. In the beginning it was free and a few residents used it as an opportunuity to have an extended family bbq at the expense of unit owners. The bbq was revamped and is now cost neutral with tickets being sold for a cost recovery price in advance; not enough sales bbq cancelled (hasn’t happened yet in 4 years).

    Redecorating or renovating common elements without resident/owner input is always a hot button topic. At my condo none of the 5 members of the old condo board used the condo gym and were the sole decision makers of equipment removed and replaced. No notice, regular gym members showed up to use the gym and were told it was closed for 3 days for renovations. It resulted in huge arguments at the AGM. Could have been prevented with common sense and communication.

    The 24 hour concierge/security should result in lower insurance fees for building insurance.

  11. Nikki R says:

    Great blog as always. And at the end of the day, what a condo spends and if it’s reasonable is really up to each individual person. As a single woman, I appreciate knowing that the 24 hour security desk will be at the door when I walk in at 2 a.m. on Saturday morning. It’s just added security in case someone sneaks in behind someone to gain access to a building (rare, yes. But not unheard of).

  12. autocorrelation says:

    One thing about 138 Princess St – they do hire a concierge for Halloween and NYE, which makes sense when you think about certain neighborhoods not that far from the building. Seems like a prudent compromise.

    Personally speaking, I think a concierge is a waste of money, but I also think the same thing about most amenities – if I want to go to the gym, I’ll get a gym membership and swim in a proper pool, use proper machines, etc.

    1. Chroscklh says:

      Back home, building have no concierge but instead have pack of wild dog in lobby – is safe, if you live there, dog know scent, is no problem. Strangers and solicitors get sometimes mauled, but is no problem. Very cost effect.

  13. Joe Q. says:

    One could argue, probably very idealistically, that an occasional fund-sponsored social event could help to resolve problems — either interactions between residents, or mechanical issues that otherwise wouldn’t be reported, etc. — before they get out of hand and become even more expensive to deal with. So it might be money well-spent in the long run.

    1. Chroscklh says:

      This is the good point. Sometime worth the money.

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