For condominiums who have a budget year that begins in January, December is the time that owners get a notice stating what the new condo fee will be. That number can be the same as the previous year, but often, that number goes up, and with market pressures and inflation, this year that number may be even higher than expected.
The amount that you pay in condo fees in Alberta is determined by the condo budget and is allocated to each owner by the unit’s square feet: basically, the larger your unit, the more that you pay. Condo budgets are built on a break-even basis, meaning that the amount it costs to run your condominium is then divided out to determine how much each owner has to pay, leaving very little in the way of contingency.
As a result, managers and boards must be meticulous to plan accordingly, because if they fall short midway through the year, it can lead to cash calls to owners which is not what anyone wants.
If you own a condo with a December year end, which is the case in most Calgary condos, your budget for the next year should already be in your hands, and it’s a very good chance that the amount that you are going to pay next year is higher than the year that’s ending. Here are some reasons why:
1 – Increased utility Costs
The joy of globalization is that now it’s easier than ever to get products quickly and easily from other parts of the world. The downside is that when there are issues in other parts of the world, it can cause increased costs to condo owners.
Utility costs have risen dramatically in 2022. For electricity, the regulated rate has risen over 150% in the past two years. This has been largely caused by an increase in natural gas costs driven by global factors like the war in Ukraine and increased costs of production. This is a factor that will likely get worse through the winter as the demand for heating fuel increases.
Some condo boards have locked their utilities in, meaning that the price is stable for the length of the contract, while others have opted to ride the market price hoping to come out better in the long run. Either way, the increased costs of utilities in a condo complex are a big reason for rising costs.
2 – Reserve Fund Allocations
Even though not every condo includes utilities in their fees, every condo must keep funds aside for capital projects in what is known as a reserve fund. These funds cover the cost of capital items that are the responsibility of the whole corporation rather than just one owner. This includes the roof, siding, parkade, walkways, and other items as prescribed by the condo’s bylaws.
Reserve funds typically go up from year to year. As buildings get older, they require more systems to be replaced, but planning for reserve expenses on a long-term basis can help control these increases. Condos that do not adequately fund their reserves can see sharper increases from year to year in this area, which can spike the condo fees.
The other issue here is that because of inflation and supply chain concerns, the cost of materials has risen dramatically: everything from lumber to metals and electrical components has gone up in price. This has led to an increase in how much reserve fund planners allocate to fund maintenance and upgrade projects. While this does allow for more money to be put aside down the road which decreases the need for extra assessments, it does mean increased condo fees for unit owners.
3 – Condo Insurance
Condominium insurance has been an ongoing issue across Canada for the last few years, with double-digit increases becoming the norm year-over-year. There are only a handful of insurers that handle this market because it is deemed to be a high-risk area. This then limits the condo board’s ability to go out and shop around for the best price and has led to increased costs.
The other issue is that condo insurers do not look at your condo alone, but rather at the entire condo market across the country and around the world. As a result, whether your condo has a history of claims or not, insurance rates have gone up because of claims made from the fires in Fort McMurray, the Calgary hailstorms, and many other events. This has caused rates to rise across the board.
While condo boards are allowed to charge the deductible for an insurance claim back to unit owners, they are only able to do so up to $50,000. This means that they cannot increase the cost of the deductible to decrease the insurance premium, as it causes an increased liability to the whole condo.
What Condo Boards Can Do?
Often, the factors that influence a condo budget increase are outside of the board’s control. They cannot change the insurance price, global supply chains, or the utility supplies. However, boards can take steps to minimize the increases. This starts with effective long-term planning, continuing to adequately fund the reserve fund and handling capital projects diligently to try to keep costs down. They can also count with the help of strong managers to use cost effective contractors and group buying to bring prices down further.
While the budgets for January have been declared and your new condo fee amount is what it is, being engaged with your condo board and ensuring you understand the factors that have led to the increase goes a long way to ensuring the increased amounts stay as reasonable as possible in the long run.
