5 Steps to implement for Condo Maintenance Fee decrease

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Opinion of a seasoned CMA (of USA) and SOXCPE expert

As a Condo Owner, you probably keep thinking why your condo fee is growing up and up every year faster than your income and inflation growth and in most cases, modest condo’s maintenance fee is higher than a private house cost? Is that normal? And it is difficult to understand why the maintenance fee is so high in Toronto and why it is much higher than in other provinces of Canada? Being a Condo owner and rental properties investor I had a lot of questions related to financial efficiency and condo management effectiveness of Condominiums. I compared the maintenance fees of the same age buildings with similar sets of amenities and saw a big difference in expenses. And I was surprised that much better-looking building in North York with gorgeous amenities and expensive finishing had lower maintenance expenses than less luxurious building in the heart of Toronto. I wanted to understand the reasons why one condominium maintains the building perfectly spending less than a cheaper looking building with cheaper services. I wanted to understand the best and the worst practice.
Based on my 20 years of experience as a financial director, board director, head of the internal control department of a public company, and especially management consultant practice related to companies’ profitability increase I know that the most of problems with low efficiency are connected with people and the information available for decision-making.
And I was sure that it is easy to decrease maintenance fees in condominiums just having the right people on the Condo board having the right mix of skills and expertise. Definitely, the right Board and right activities could change a lot, as it was in Toy Factory lofts but there are always a lot of internal and external reasons that bring Condo to the usual management way and to the same financial result.
My investigations

1. Maintenance fees of the same age buildings with similar amenities are different

2 groups of Toronto and North York Condo buildings approximately the same age 2003 -2006 years registrations have been selected.

The first group – buildings which have a pool and hydro and heating included in the owner’s bill and 

the second group – building without a pool and hydro and heating are not included in the bill.

We can see that in the first group of buildings with similar amenities and inclusions, maintenance fee is very different, ranged $0.45 – $1.4 per SF/month). But there is not a big difference between maintenance fee of buildings that do not have a pool and hydro and heating are not included ($0.52 – $0.86 per SF).

What are the reasons that the condo building Triomphe  (with a pool, hydro and heating included) has a maintenance fee $0.59/SF (table 1),  that is lower than a similar building’s. Spectrum Residences – South Tower maintenance fee which is $0.67/SF (table 2)?

Based on a comparison of similar buildings maintenance fee we could conclude that the set of amenities, age and character features of a building are not the major cost drivers of Condo maintenance fee. in Toronto.  There are some other, more influencing factors that must be considered.

2. Detailed Condo Budget and Reserve Fund Study

I made a deeper investigation and compare detailed budgets and Reserve Fund Studies summaries of 10 Condo buildings to understand clearly why maintenance fees and reserve fund contributions of similar Condos (with a similar set of amenities and inclusions) are so different . Compared a few condos I saw 30 % to 80 % maintenance fee and reserve fund contributions difference between them. Financial statements and “Reserve Fund Study” of those condos allowed me to reveal just four items of the budget that required a deeper investigation:

  • Reserve fund study summaries of 2 similar buildings of the same age and construction type were extremely different, it looked like those Companies have taken the occasional numbers to recommend.
  • Plumbing expenses one of the building was 7 times higher than another one.
  • The operational fund balance one of the building was $20,000 but it was $400,000 of another one.
  • Two buildings Management company’s service fees had more than 100% difference however, the set of amenities the building with twice lower management company’s service fee were a way wider.

I have got more questions than answers after my researches and I decided to apply for the Board position to learn the situation from inside.

List-of-Condo-management-high-risky-areas

List of Condo management high risky areas

I have been elected on the Board and my Director’s experience allowed me to understand clearly: Condo might find better Contractors for regular services like Security, Cleaning etc. and get annual contracts with better price and might be a better quality but it will save Condo just “a few cents”. And the right people on the Board are not enough to improve the situation dramatically.

The main reasons of high expenses and possible measures to decrease maintenance fee are the following:

  1. A list of repairs financing from a Condo Operational Fund is not an object for an effective Board discussion because of a lack of Directors’ time and Competencies. Usual annual expenses $20,000-$300,000
    Condo Boards are not taking a time revising a list of repairs that need to be done in the Condo. Typically, it is just not enough time for the Board Directors to get into details of a Condo Manager Proposals why Condo needs to repair some equipment or replace some furniture or upgrade a look of the pool area. And there is usually a lack of expertise to exam an equipment and understand the most efficient way of actions.
  2. A list of major repairs and replacements financing from a Condo Reserve Fund is not an object of the Board’s effective discussion because of a lack of Directors’ time and Competencies as well. Usual annual expenses $20,000-$800,000
    The list of repairs is a subject of a Condo Board communication but just a list. In the most cases the Board is not able to identify what exactly should be replaced and which technologies to implement because of a lack of engineering knowledge. Unfortunately, there are a lot of possibilities to repair something that is still in a good order and replace something to the same.
  3. A list of qualified Service Providers for any annual service contract or any project is restricted by Property Manager’s and a quality of job and prices are not competitive
    The information about Condo big and small Projects is available just to a restricted circle of Service Providers and it is not accessible for a wide range of Condo Service Suppliers that might offer a competitive quality for a competitive price. As usually, there are just 3 Companies invited by a Condo Manager. As a Result, Boards of Condominiums usually have a restricted choice of Suppliers’ offers for any kind of job. It means, no quality and price competition for the job! 
  4. The market prices for Condo Services are not transparent and no any opportunities to compare them
    Contractors do not advertise the prices openly. There is no any rivalry among Condo Contractors by price or quality. And it is next to impossible to reach Equilibrium Market Price and the Best Quality in such situation. We found a perfect solution for that – www.condo-fairtender.ca the bidding platform that allows Condo Management to get a competitive quality and a price.
  5. The scope of the works related to major repairs and replacements are usually based on Service Providers’ assessment who’s job is paid as a percentage of the total job price
    Contractor who’s price depends on the price of the job needs to be done is interested to blow up the scope of work to get more money. The conflict of interests is explicit www.condo-fairtender.ca is dedicated to resolve that problem through open tenders specifically dedicated for Condominiums.
  6. The actual job done is just under a formal Board control and usually, there is no any physical control of a quality and quantity of actual job done
    Board usually does not check any actual job done, any equipment replacement because of a lack of engineering expertise and a lack of Directors’ time. But there are a lot of opportunities to pay for unacceptable job performance or for a job that was not actually done at all.
  7. The reserve fund size and annual contributions that is about 20-35 % of total condo budget is usually does not have reliable assessment base and the Condominium Act and Bill 106 do not provide a clear methodology of that assessment. It more depends on a judgment of a Contractor’s who performs a reserve fund study rather than on reliable methodology of major Condo repairs and replacements statistics. And the more money in the reserve fund the more freedom and temptation to use those money.
  8. The conflict of interests and a Board formal role in Condo management
    approving what Property Manager offers rather than plays as a real influencer. So, it almost does not matter who are on the Board because everything depends on the Property Manager that tends to work more on his/her Property Management Company’s interests than on Condo owners’ interests. Some of Condo Contractors are affiliated Companies of Property Management Companies, so a conflict of interest exists.
  9. Lack of owners’ opportunities to discuss problems and influence their financial and social Condo problems.
    Condo owners are separated from each others by privacy terms and do not have the opportunity to discuss their problems with each others within the building and with owners of another buildings.

5 measures that will help to decrease Condo Maintenance Fee

  • 1. A list of repairs and replacements must be a major object of the Board examination and discussion. It would be reasonably to invite an expert in an appropriate field. It might safe hundreds of thousands dollars to owners.
  • 2. Service providers should be competing for Condo projects and contracts by price and quality through open tender. And a scope of work might be a subject of the same contractor assessment or another independent contractor. But the price must exclude a conflict of interests.
  • 3. Condo owners must have an opportunity to discuss main Condo projects with each others in the building and ask another Condos owners advice. Owners should have an opportunity to be involved in decision-making of expensive projects and influence.
  • 4. Each repair and replacement expensive project final result must be under Board control.
  • 5. Reserve fund should be revised by the Board and corrected based on its expert opinion and past experience.
Based on the data above, my financial director's professional experience and based on my condo board director's experience I would say that Toronto Condos Maintenance Fee's the most influencing factors are the effectiveness and honesty of property management company and a manager, a great team job of Condo Directors, condo services market degree of competition and transparency, availability of information about the best practice for Condo Management team decision-making.

Infographic: 5 measures that will help to decrease Condo Maintenance Fee

Infographie-5-Steps-to-implement-for-Condo-Maintenance-Fee-decrease

All Condos problems inspired us to create a Solution consisting of 3 web resources:

  • www.condo-benchmarking.ca to let condo owners to compare Condos KPIs, understand problems and take actions
  • www.condo-social.ca to discuss Condo problems with other Condo owners within one condo and ask questions from owners of other Condos and from Experts
  • www.condo-fairtender.ca to connect Condo Owners and Management with the best Qualified Condo Service Providers, get the best prices and the best quality of services!

www.condo-benchmarking.ca

Make a right decision!

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