Strata Warning

Think twice before buying into a strata, and listen to what others with more experience have to say.

Lots of strata apartment buildings around here are laying whacking huge assessments on the apartment owners. One auntie near Mt. Pleasant just got a $20,000 assessment, and one in Mt. Pleasant just got a $78,000 assessment. In both cases, there was a leaky unit (or units) in the building, and so the cost of repairs on those units is being divided among all the units. But not only that, the strata councils are taking the opportunity to roll other expensive items into the assessment at the same time. In the case of the $78,000, they decided to charge everybody to put in a green roof - lovely, if you can afford it - and to make other adjustments to other apartments. For $78,000, this auntie is only getting new windows that will reduce the amount of direct sun in her 4th floor unit.

When you're hit with an assessment like this, it can wreck you financially.

The auntie with the $20,000 assessment is in her sixties and on a fixed income. She was planning to live in her unit til she got a bit older and then sell it and buy someplace smaller and cheaper. Now she says she can't qualify for a mortgage increase because she doesn't have enough income, but she isn't permitted to sell the unit without first paying off the $20,000 assessment and she hasn't got enough money. Further, if she manages a short-term loan, maybe from friends, so she can pay the assessment and pay back the loan when she sells, she won't realize enough money now for a downpayment on another place. She thought she had her financial endgame figured out, but now she's screwed.

People who recently bought their condos and then got hit with these big assessments are also in real trouble. They haven't realized any paper increases in their property value, and they haven't paid much off, so they don't have enough equity to get a mortgage increase. Even if you can afford to pay more per month, you can't qualify for mortgage debt that is higher than the value of the property.

The auntie with the $78,000 assessment is married and they do qualify to add this onto their mortgage. But it will increase their mortgage payments by $300 a month. They have a disabled child and that increase will work a real hardship on them. They are thinking of renting their strata flat out to somebody who has a higher income than they do, and then renting a cheaper place in another town to live in until they get this paid off. As their apartment has so much sunshine, I suggested she rent it out to someone who could pay the whole rent up front and put in a nice grow-op. But even that won't work, because strata management, unlike management of other properties, are now bound by regulation to do monthly inspections to see if there are things like grow ops or meth labs in the units. With the cost of strata living soaring into the stratosphere, it's no wonder this is becoming a significant problem. People working ordinary jobs can't afford to stay housed.

This type of precarious financial arrangement is going to be on the rise, as owners of older apartment houses are deciding to stratify their buildings to get their capital out. I'm sure this must seem a particularly desirous way to go if you're an owner who thinks that some big repairs will be looming soon.

The way I read this publication from the Canadian Bar Association (BC branch), theoretically each person who buys a condominium owns and is responsible for their own unit, with joint responsibility only for common facilities. However, when you buy a condominium you also become a strata owner - and through that label, obligations are imposed. Stratas are governed by strata councils, and strata councils have been given obligations under the Strata Act. Among these are the obligation to repair a leaky building and to raise this money through owner assessments. So, someone else's leak can and must be made your problem, even if you don't have a leak.

Here are some websites about strata councils and their obligations:

www.fic.gov.bc.ca/pdf/responsibilities_strata/Guide04.pdf

www.cwilson.com/stratafaq/

www.hpo.bc.ca/PublicationsForms/InformationSheets/Act.PDF This link has contacts for getting a look at the whole Strata Property Act.

Alternatives to strata buying include coop living, in which you can't sell your unit but you also don't have to put up such a huge amount of capital to live there. Cost of living there is also sometimes means-tested, with those who can afford "market rate" helping pay for some units that are at below market rate. Coops can also be leaky, and it's a fact as one auntie graphically showed me, that around Vancouver there are leaky coops that have gone years or even decades without major repairs to leaky units and water-damaged common areas, because they are waiting for government money that was promised but seems interminably slow to come through.

In both coops and strata housing, management is hired by a council. This is often such a difficult job that now there are management companies that rotate their managers between different buildings, so that no one manager has to put up with the bad buildings for very long. What makes a management job painful is that the strata or coop council is often a scene of strife. This is typically because argumentative and highly opinionated people enjoy carving out a niche for themselves in these bodies, and by their behaviour they tend to drive more considerate types out. Then, when a decision is taken by council, it may happen that the easygoing people are at the mercy of snobs, nuts, or shit-disturbers who don't have others' best interests at heart. In a strata situation, people who ignore all these goings-on as just unpleasant politics may be suddenly be forced to paint their apartments a disgusting colour, or be suddenly presented with a staggering bill for repairs or innovations they can't afford.

So, if you are in strata housing, make it a point to be vigilant about what's going on with the building you partially own, even if it's a pain in the butt to put up with your co-owners. People who rent can just move. and if you own a whole home, you can probably quietly let it rot about your ears until you die. But if you own a condominium you're in business with a lot of partners. Not only are there risks, but the richer partners can effectively squeeze the poorer ones out.