September 24, 2023 - Blog Post

Setting Condo Fees

As mentioned in the previous blog on budgets, it is getting to that time of year where Boards need to prepare next year’s budget and set the corresponding condo fees from that. Setting these fees involves a careful consideration of various factors to ensure that the fees adequately cover the costs of maintaining and managing the condominium property while remaining fair and reasonable for the unit owners.  However, what owners consider fair and reasonable can be challenging.  One year I had owners, a married couple, one of whom was on the Board, argue that we were paying too high condo fees and then proceeded to bring up other condo corps comparing their condo fees with ours.  It was quite intense for awhile.  Comparison is a losing game as every corporation is different in their costs but bringing it up can inflame a lot of people.  In my case we found out later that the couple were selling their condo.  I suspect they were concerned they would not get their asking price or find it difficult to sell their condo if the fees seemed too high.  Despite the condo fee increase their condo sold very quickly and for a very good price.  I have had similar debates throughout the years.  At the end of the day, it is simply a math problem. You need to bring in enough revenue to cover your operating costs and your reserve fund contributions. Unfortunately with today’s cost of living I believe we are going to continue to see increases in condo fees that will put extra stress especially for those on fixed incomes or struggling financially.  There may also be reluctance by some to raise fees because once increased they never seem to go down.

Here are some steps and factors to consider when setting condominium fees:

1. Budget Preparation:
   • Start by preparing a detailed budget that outlines all the anticipated expenses for the upcoming year. This should include regular maintenance costs, utilities, insurance, repairs, property management fees, administrative expenses, and any other relevant expenses.
2. Identify Fixed and Variable Costs:
   • Categorize expenses as fixed (consistent every month/year) or variable (fluctuating based on usage or need). Fixed costs might include property management fees, while variable costs could include utility bills.
3. Reserve Fund Planning:
   • Allocate a portion of the fees to a reserve fund as detailed in your reserve fund study. This fund is used to cover unexpected or major repairs and replacements, such as roof repairs or elevator replacement. A healthy reserve fund prevents the need for special assessments in case of emergencies.
4. Equitable Allocation:
   • Condominium fees are typically divided among unit owners based on their respective shares of ownership, usually determined by the square footage of their units.
5. Review Historical Data:
   • Look at previous years' expenses to identify trends and ensure that the budget and fees are realistic and reflective of the property's needs.
6. Legal and Regulatory Requirements:
   • Be aware of any legal or regulatory requirements that dictate how condominium fees are set in your jurisdiction. These may include guidelines on how much of an increase is allowed annually.
7. Services and Amenities:
   • Consider the amenities and services offered in the condominium complex, such as swimming pools, fitness centers, security services, and landscaping. These amenities may require additional maintenance and impact the fees.
8. Inflation and Cost Increases:
   • Take into account inflation and potential increases in costs over time.  It's important to ensure that the fees remain sufficient to cover expenses in the future.  We just reached 4% inflation, which is the highest in some time.
9. Consult Professionals:
   • Engage with professionals such as property managers, accountants, and legal advisors to get their input on the budget and fee structure. They can provide valuable insights based on their expertise.
10. Communication with Unit Owners:
    • Transparency is key.  Communicate with unit owners about the budget, how the fees are calculated, and the reasons for any changes.  Holding regular meetings or sending out informational materials can help build understanding and trust.
11. Approval Process:
    • In Nova Scotia the Board approves the budget rather than the owners and sets the condo fees for the year.
12. Review and Adjust as Necessary:
    • Regularly review the budget and fee structure to ensure that it remains aligned with the property's needs. Adjustments may be needed based on changes in expenses, the addition of new amenities, or other factors.

Remember that setting condominium fees requires a balanced approach that considers both the financial health of the association and the fairness to the unit owners.  It's important to find a middle ground that covers expenses sufficiently in accordance with the Act & Regulations that, where possible, does not cause an undue burden on the residents.  This can be challenging but it is the Board’s job to ensure the corporation stays healthy financially while also ensuring the proper maintenance, repair or replacement of the building components and grounds.

Michael Kennedy
CCI Nova Scotia