Borrowing Limitations and Requirements
Legal Borrowing Authority of Condominium Corporations
A condominium corporation has the legal authority to borrow money, but it must comply with CPA restrictions and follow proper governance procedures.
Borrowing funds must be for condominium-related expenses such as:
Major capital repairs or replacements.
Emergency expenses beyond the reserve fund capacity.
Funding shortfalls when regular contributions or special levies are insufficient.
Borrowing Limitations Under the Condominium Property Regulation
The borrowing of money by a condominium corporation must be authorized by an owners resolution if the total amount borrowed in a fiscal year exceeds the following limits:
✔ 15% of the corporation’s revenues as set out in the most recent financial statements (or an amount set in the bylaws), whichever is lower.
✔ The maximum borrowing limit set in an owners resolution for the fiscal year.
The Condominium Property Regulation states that borrowing must be authorized by an owners resolution when the total borrowing in a fiscal year exceeds 15% of the corporation’s revenues or the maximum amount set by a previous resolution, whichever is greater.
Adopting a Borrowing Resolution
If a condominium corporation needs to borrow beyond the allowed limit, it must pass an owners resolution that specifies:
The maximum borrowing amount for the fiscal year.
The borrowing amount either as a percentage of revenues or as a fixed dollar amount.
The ability to pass multiple borrowing resolutions in the same year, but a lower borrowing limit cannot impact loans already approved under a previous resolution.
Financing Methods for Condominium Corporations
Common Financing Methods
Condominium corporations have several options for financing their operations, including:
Condo Fees
The primary source of funding for daily operations and maintenance.
Collected from unit owners based on their unit factors.
Reserve Fund Contributions
Funds set aside for major repairs and replacements.
Cannot be used for regular operating expenses.
Special Levies (Special Assessments)
A one-time charge imposed on unit owners for unexpected expenses.
Requires proper notice and approval by the board.
Loans and Credit Lines
Condominium corporations can borrow funds from financial institutions.
Loan repayments are funded through owner contributions or special levies.
May require a vote of unit owners, depending on the amount borrowed and the condominium bylaws.
Insurance Claims and Settlements
Funds received from insurance claims may be used for repairs and damage coverage.
Government Grants or Subsidies
Some government programs offer energy efficiency grants or infrastructure subsidies.
Selecting the Right Financing Method
The board of directors must:
Evaluate the cost of borrowing versus raising funds through owner contributions.
Assess the long-term financial impact on the corporation.
Ensure all decisions comply with the CPA and condominium bylaws.
Assessing Compliance with Borrowing Regulations
Compliance Factors for Borrowing and Financing
A condominium corporation is considered financially compliant if:
Borrowing decisions follow CPA and bylaw requirements.
Proper board approvals and, if required, owner votes are obtained before borrowing.
The borrowed amount is justifiable and used for approved purposes.
Loan repayments are factored into financial planning without creating a financial burden on owners.
Common Financial Compliance Issues
Borrowing funds without proper approval from unit owners or the board.
Misuse of reserve fund money for unauthorized expenses.
Imposing special levies without justification or notice to owners.
Taking loans without a clear repayment strategy, leading to financial instability.
Steps for Verifying Compliance
Review financial statements to ensure funds are properly allocated.
Check board meeting minutes to confirm approval processes were followed.
Analyze loan terms to ensure the condominium can meet repayment obligations.
Verify owner approval if required by the condominium bylaws.
