A Real Estate View on Environmental Assessment

Why? Cost? What if Problems Exist? Remediation?

Although we are not engineers in the environmental industry, we do see "Environmental Assessments" as part of the due diligence process. The above questions are a good place to start and gives you a practical "Real Estate View" with respect to EAs.

WHY - any EA (be it a Phase I, 11, or Ill), will identify either actual or potential property/site environmental issues. Some may be minor in nature, whereas others may be seriously problematic and pose major risks to users of the property. Beyond identifying environmental issues, a proper report should provide a series of recommendations to deal with and correct the problems outlined.

COST - will vary based on the type of report required and the depth of analysis needed. Every jurisdiction will have both national and local firms which specialize in EAs. Best practice is to compare services between 2 or 3 providers and be realistic based on the history of the subject property. Lowest fee is not always the way to go - again, you get what you pay for.

WHAT IF PROBLEMS EXIST - from a transactional standpoint, this is why you have a DUE DILIGENCE REVIEW built in to your offer. Beyond the problem(s) identified, there is going to be a cost to correct. Options may include:

1. terminate the deal
2. request the cost to correct be at the expense of the Seller
3. accept the problem and assume the liability
4. review all details and any proposed resolution with the lender

REMEDIATION - this is the common term for correcting the problem, and applies more in the event of complex matters - ie. contaminated soil,asbestos removal, underground tanks etc. Two key points here:

• ensure the engineer who created the report remains involved through the remediation period
• ensure a final report clearing the matter is obtained upon completion of the work

Again, the lenders need to be on-board with all matters relating to the EA, otherwise your financing could be at stake. Would love to hear about your experiences on EAs - and yes - the good, the bad, and the ugly.

As always, feel free to connect with us on Commercial Properties here in Windsor - Essex!

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Mark Lalovich
mark@lalovichrealestate.com
Office: (519) 966-0444
Cell: (519) 259-5434

Condo Special Assessments Explained

Today we are going to talk about a topic that is rarely understood by people other than those who own a condo and have experienced the situation first hand – the situation of a special assessment. A special assessment can be an expensive item for condo owners and one that unfortunately happens often. Lets start with a definition:

A special assessment is an additional payment or a levy that a condo board has to impose when unexpected shortfalls or unexpected expenditures occur in the budget, or when an expensive system has to be replaced (i.e., a boiler) and there is not enough money in the reserve fund to cover for it.

Generally this special assessment is in the form of a lump sum payment or spread out over a certain term (i.e. 3-12 months) and added to condo fees. There are no provisions in the Condominium Act, 1998, that talk about special assessments. Therefore implementation and rules regarding the structure of a special assessment are up to the condo board.

Source: CTV News

Unit owners have the same obligation to pay special assessments of common expenses as they have to pay regularly assessed common expenses. A failure or refusal to pay a special assessment as and when required by the board of directors gives rise to a lien against the owner’s unit. Condominium boards do not require unit owner approval for a special assessment, unless the by-laws of the condominium specifically require it.

When a special assessment does occur, depending on the size relative to the pricing of condos in the building, certain owners might not be able to afford to pay them. This can lead to a series of forced sales in the building and an overhang of supply, leading to lower sale prices across the building. A long history of special assessments in a building can be a red flag and indicative of poor management or poor physical construction.

Source: Edmonton Downtown

When looking at purchasing a condo, make sure you ask or put in the schedule of an offer, for the seller to disclose any current or pending special assessments, so you are clear on any liabilities you are inheriting. As discussed in an earlier post, look through the reserve fund study so that a proper assessment can be made, of the finances of the condo corp and the likelihood of a special assessment in the short term.

Have you had any negative experiences with special assessments? We'd love to provide you advice.

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Russel Lalovich
russel@lalovichrealestate.com
Office: (519) 966-0444
Cell: (519) 995-5620

6 Things You Should Look For In A Stable Condo

When you own a condo, you own your individual unit, but you are also entitled to use the common areas of the building. Compared to a single family home, when decision making regarding the property is generally your own, in condos most decisions are made by the condo corporation.

This brings with it an element of partnership among your common condo owners. Considering this ownership structure, it is important to feel comfortable with the future stability of the property and the condo corporation.

Source: Ottawa Citizen

6 Factors To Look For:

1. Professional management by a management company with experience managing condos. This is important because they run the financials of the building, reserve fund studies, board meetings, implementing of operational changes, etc.
2. An engaged board of directors of the condo corp (who live in the building) and who will act in the best interests of the condo owners.
3. A low to moderate amount of sale turnover. Generally it is positive for a building to have a limited amount of annual sales in the building and have a building with a majority of long term owners. This is indicative of happy owners and with long time horizons of ownership. Buildings that always have several units for sale is sometimes a red flag of problems and there is always a steady supply of people looking to sell.
4. Low to moderate amount of units that are tenanted. Having a large supply of owner occupants is usually indicative of pride of ownership in the building and lesser ‘wear and tear’ of the building. Tenants also usually will not be long term, which from #3 above, hurts stability of the building. Having a large supply of tenanted units in the building can also be a red flag that there is an overhang of units for sale that sellers are unable to unload.
5. Generally stable condo fees. Stable condo fees are indicative of good financial management of the costs and liabilities of the condo corp. If they are changing, make sure they are for a good reason (like increasing hydro and water costs in Ontario, which are out of control of management).
6. Limited history of special assessments. A special assessment usually comes down when an item or items needs to be replaced or repaired in the building and aren’t budgeted for as part of the reserve fund. We will do an in depth post of special assessments in an upcoming post. Having a limited history of this is generally positive and ties in with #5 of good financial management and maintenance of the building. Having a long history of special assessments can be a major red flag as the building may have serious physical/structural issues.

This is far from an exhaustive list but give you a few general things to look for in a stable condo building. Always make sure to do your due diligence!

Is there something you look for in a stable condo that's not on this list? We'd love to know - leave us a comment!

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Russel Lalovich
russel@lalovichrealestate.com
Office: (519) 966-0444
Cell: (519) 995-5620