Why do Buildings have Different Strata Fees?
Strata Fees are in place in just about every condo building in the City (duplexes and really small 3-4 unit buildings may not charge a monthly strata fee). These strata fees are charged to pay for the following things:
General Building Maintenance: Hallway heating and electricity, Strata Management Fees, Gas for the Building, Regular Upkeep (i.e. monthly elevator maintenance, etc), Gardening, Cleaners, City Services (like water and garbage/recycling), Building Amenities, etc.
Future Building Maintenance: The Contingency Fund for large or unexpected projects. The legal requirements for any Strata (found in the Strata Property Act) states that buildings must keep at least 25% of the annual operating budget in the Contingency Fund. Some organized and forward thinking buildings also have specific Maintenance Funds for upcoming projects, for example, if they know the roof will need to be re-done soon, they’ll put a portion of Strata Fees away for that purpose every month to avoid a Special Levy.
The amount you pay in Strata Fees is determined by your % ownership in the building applied to the Strata’s yearly budget. The Budget is determined by the Strata Council, and presented to Owners for Approval at the AGM. Each budget line item will be different for every building, some examples include:
- Buildings with elevators will have a higher budget for regular elevator maintenance. Keep in mind that a 10 unit building with an elevator will cost each owner more compared to a 50 unit building with an elevator, since the costs are split between fewer people.
- Buildings with amenities will have a higher budget for maintenance, so pools, gyms, concierges, etc, will cost you, though the cost is mitigated if the building has a lot of units.
- Buildings who are trying to save a lot of money for future maintenance will have a higher budget for those costs, though that is to decrease the amount Owners would have to pay for future special levies.
- Buildings that are self managed will save on management costs though they should be budgeting some money for accounting and legal help in lieu of a Property Manager.
After the yearly budget is prepared and approved, your strata fees are calculated based on your unit entitlement (found on the Strata Plan) which is the size of your unit compared to the size of all other units. For example, the biggest unit in the complex will have the highest strata fees. A unit double the size of another will pay double the strata fees.
The Yearly Budget and Financials Statements are two documents you’ll get to review if you look over the Strata Documents for the building. This blog post is only one example of why having an agent who can understand the documents is really important in your home search.
I find a lot of Buyers balk at buildings with high fees before they understand why that’s the case. Here are some reasons why a building may have higher strata fees (than you’d want), and why it’s not a bad thing!
- A higher sqft compared to other units you’re considering! A 900sqft unit will likely (though not certainly) have lower Strata fees than a 1200sqft unit, so keep in mind the size of unit compared to the fees when you’re viewing different units.
- A small number of units in the building: If the building is boutique, there are fewer people to split the costs of managing the building and covering monthly expenses. Overall, the cost to manage a small building will be less than a larger building, but certain expenses may still be high. For example, a 20 unit building with an elevator means owners will pay a higher share of the elevator costs than a 60 unit building with an elevator. Boutique buildings have their own benefits and certain cost saving opportunities. For example, they are typically self managed and are more simple to maintain. I suggest you weigh the pros and cons and get a feel for how the building is managed.
- How much the building wants to put towards their Contingency Fund every month: Every building will contribute a small portion of monthly strata fees to the Contingency Fund, but some buildings decide to increase that amount to ensure the building has more money set aside for unavoidable maintenance. There is another Strata document you may know about – The Depreciation Report – which became popular a few years ago. The whole purpose of this Depreciation Report is to ensure Owners know what maintenance the building will need and how much it will cost over time. The last section in the report always presents 3 different scenarios: Low Strata Fees and High Special Assessments, an Increase in Strata Fees and some Special Assessments, and High Strata Fees to Avoid Special Assessments. No building in the city will choose the High Strata fees route because it’s too high for people to manage. However, a lot of buildings do take to heart the idea that raising strata fees will ensure the building has money for projects when they need it, which is a good idea if you ask me. Far too many building’s are unprepared for the future, so a strong Contingency Fund is what I want to see, and you get there with higher strata fees.
At the end of the day, I am certainly not dismayed when I see a building with high strata fees, but I always want to know the full story. That story comes from the strata documents and knowledge on how other buildings operate and what works best.
Let me know if you have any questions or comments!