The Importance of Obtaining and Reviewing a Status Certificate with a Lawyer

It is not information itself but how we use it that defines our prudence. An overload of information will lead to poor decisions, despite any lucky benefits, since too much information is equivalent to no information, and any decision based on no information cannot be prudent but only speculative. The same can be felt by the lay potential buyer of a condominium unit who obtains a Status Certificate for determining whether to buy a unit for residence or for investment. Reviewing a Status Certificate may seem like information overload to someone who has not been trained for such a task. Thus, in such circumstances, the best approach may be to consult a lawyer who is knowledgeable of the nature and implications of the Status Certificate’s contents, for they would know how to use the information provided in the document.

Status Certificate

A Status Certificate is a document which provides potential buyers with the current legal and financial “status” of a condominium unit along with some information about the condominium corporation, which is made up of owners of the condominium. It a snapshot of the corporation and unit’s position at a given time.

A document analogous to the Status Certificate is the Annual Report of a public corporation, which contains financial statements, ongoing legal matters, and other sets of information which give potential investors a clearer picture of the business of concern. Potential investors, who are looking to be shareholders or creditors, would look to this Annual Report to gather the insights they need to make a smart investment decision. Unfortunately, not everyone knows what to look for when analyzing the Annual Report; and not everyone knows what to do despite having the necessary information in front of them.

Similar can be said to the potential buyer of a condominium unit. Upon request to the condominium corporation which owns the unit of concern, the corporation will give the requester a Status Certificate, with a specified date, containing the information listed under section 76 of the Condominium Act. The main elements of the document can be stated as follows:

The Scope of the Unit;
The Budget and Financial Status;
Any Ongoing Legal Proceedings;
Rules, Regulations, and Restrictions; and
Insurance Requirements for owners.

Scope of the Unit

It is important for every potential buyer to consider what the unit of concern entails. Does it come with a parking unit; or perhaps a locker? The Status Certificate will confirm the legal description of the unit, including lockers or parking units. This can be important for consideration, as in some cases parking units or locker units are not owned but are instead used by the seller. Only a careful review of the Status Certificate and accompanying documents will confirm just what the seller owns and what exclusive rights are transferable to the buyer. Once confirmation is made, the potential buyer can be one step closer to being a prudent buyer.

Budget & Financial Status

The Status Certificate provides the potential buyer with the common expenses of the respective condominium unit. The document also provides any increases to the common expenses for the unit that the board has declared since the current fiscal year’s date of the budget of the corporation, along with reasons for such change, pursuant to section 76(1)(b) of the Condominium Corporation.

Moreover, while common expenses of the past are important for consideration, reviewing the current budget will also shed some light into the budgeted expenses for the condominium corporation as a whole, which provides valuable insight to the potential buyer regarding the corporation’s financial priorities for the future. It might also provide an intimation to how well the condominium corporation manages the business and its units.

In addition to the common expenses and budget, the reserve funds can provide some interesting information. In essence, it is a special account from a financial institution (i.e. bank) which is separate from the condominium’s operating fund. This special account would be used for major repairs and replacements within the condominium units. It is analogous to an emergency fund. Reviewing the reserve fund can be important for the potential buyer because, supposing the potential buyer one day becomes the new owner of the unit of concern, the answer to whether the condominium corporation can quickly repair or renovate as required may vary depending on the amount of money kept in the reserve fund. Without proper consideration of the implications of the particular amount of monies held in the reserve fund, it can be quite difficult to make a prudent purchase of the condominium, for the reserve fund analysis can be crucial when determining whether the purchase of a condominium unit was worth its price.

Legal Proceedings

The main questions regarding legal claims is quite simple: is the condominium corporation involved in any legal proceedings before the court, arbitrator, or administrative tribunal? Are there any judgments outstanding? What about liens or special assessments? Answering these questions can reveal any red flags that the potential buyer should be aware of before signing the purchase agreement. All legal questions should be pointed to answer to the ultimate question of whether the purchase of a particular condominium would be prudent. This is best achieved by consulting a lawyer.

Rules, Regulations and Restrictions

The question of whether the corporation has faced or is facing material legal problems can be followed by the question of whether there are any laws that unit owners must follow during their time of ownership. This would be very important to know before making any purchase, since such rules and regulations may constrict the intended behaviours of future unit owners. For example, a potential buyer could have purchased a condominium unit for the sole purpose of renting out the space to tenants. However, if the rules of the condominium corporation dictate that there shall be no tenants, then the purpose of the purchase is rendered meaningless, though the term against tenancy may be enforced under contract law.

Furthermore, suppose the potential owner has a pet dog. It would be quite important for the potential buyer to know the restrictions on keeping pets within the respective unit, notwithstanding whether such restriction is based on animals, breed, size or something else. Thus, a thorough review of the rules disclosed through the Status Certificate would provide the potential buyer with the information to properly determine whether their intended use for the property of concern would comply.

Insurance Requirements

Needless to say, insurance is important; and a brief review of the condominium declaration can provide clarification to the potential buyer on the insurance coverages that a current owner is required to obtain. Typically, a condominium corporation maintains comprehensive insurance for the building and its common elements. However, unit owners are often required to obtain coverage for their personal property, and for liability relating to incidents within the purchased condominium unit. Discussing these insurance requirements with an insurance agent during the conditional period will allow a prospective buyer to determine whether they will be able to obtain the required coverage and associated costs.

Concluding Remarks

Not everyone knows what to look for when analyzing the Status Certificate; and not everyone knows what to do despite having the necessary information in front of them. It is not enough to obtain and review complicated information alone, just as it is not enough for the lay reader to understand the implications of the information written in an Annual Report or a medical report. Someone reviewing an Annual Report would be prudent in seeing an expert in Accounting, Finance or Law. Someone reviewing a medical report would be prudent in consulting a doctor. Likewise, the potential buyer of a condominium unit would be prudent in reviewing the Status Certificate with an expert in the field of Real Estate Law. Thus, seeking consultation with a lawyer on the Status Certificate can be the best approach in making a well informed prudent purchase of a condominium corporation, whether it be a new home or a new investment.

-Aaron Rajesh