Buying a condo isn’t like buying a single family home. Here are the six essential questions you need to ask yourself before opting for a co-ownership.
A condominium, or condo, is a divided co-ownership, meaning that each unit is independent from the others and has its own cadastre number.
This is the type of property that exists in buildings that contain multiple units.
On the other hand, undivided co-ownership is a form of communal ownership, with only one cadastre number. This is the form of ownership chosen, for example, by a duplex owner who decides to convert it into a co-ownership.
These two types of co-ownership are different, and meet different needs.
To buy a divided co-ownership (a condo), you need a minimum down payment of 5%. This type of co-ownership is good for people who:
To buy an undivided co-ownership, you generally need a down payment of 20% or more. This form of co-ownership is good for people who:
Note that the ability to have separate mortgages is not decided by the bank, but rather by a contract signed by the co-owners called the act or declaration of co-ownership. The responsibility of the co-owners is identified as being “limited” to their unit or “unlimited” which means they are responsible for the building as a whole. Undivided co-ownership with unlimited responsibility obligates you to hold a single shared mortgage with the bank, that all co-owners must sign.
This document outlines the building rules, including co-ownership fees. The declaration of co-ownership also lists your rights and responsibilities in detail, and the rules for selling your unit. It specifies, for example, how private and communal spaces can be used. Do you have the right to hang a clothes line? Are you allowed to rent out your unit a few months a year? It should answer all these questions and more.
Aside from the building rules, the declaration of co-ownership also includes the constituting act, and the relative value of each fraction. As a buyer, you might be interested in knowing the value of the other units, as well as how your fraction is weighted in the total value of the building. The latter will influence the co-ownership fees you pay, and your responsibility for any special contributions.
Finally, the management structure of the co-ownership will be described. Is it managed by a professional or volunteer syndic? If it’s managed by volunteers, do you want to get involved in managing the building? That means attending meetings, bookkeeping, managing suppliers to undertake maintenance work… Does that interest you?
This fund is an account into which a portion of the co-ownership fees are deposited in case the building needs major repair work, like redoing the roof or anything else that might come up. It’s important to evaluate the co-ownership fees and contingency fund based on your own needs and situation.
If the contingency fund is small or non-existent, you need to expect that you’ll be required to pay more if major work is needed. Will you be able to manage that when the time comes?
Depending on your financial situation, you might prefer to pay higher fees on a regular basis or a lower monthly fee knowing that you’ll need to be ready to defray the cost of any major work in the future.
To buy a divided co-ownership, you need a down payment of at least 5% of the purchase price of the condo, and it can’t be borrowed (it can, however, be a gift from a friend or family). That’s the minimum requirement for a co-ownership valued at $500,000 or less, but there’s nothing stopping you from putting down more if you can, obviously!
If you can manage to pull together 20% or more of the purchase price of the co-ownership, it’s possible that the mortgage lender (your bank, for example) will waive the requirement for mortgage insurance, which could save you thousands of dollars but it’s not always the case.
This insurance, generally provided by the Canada Mortgage and Housing Corporation (CMHC) serves to protect the mortgage lender against borrower default.
In an undivided co-ownership, municipal taxes are generally lower, because the units are considered to be a single property and are taxed as such. The co-owners are jointly responsible for the taxes on the entire building. On the other end of the spectrum, each condo owner receives individual municipal and school tax bills, and is solely responsible for payment.
As for insurance, in the case of an undivided co-ownership, the entire building must be insured by a single policy that is jointly shared by the co-owners. For condos, there are two types of insurance: the policy taken by the condo association, a commercial policy that covers all the communal areas, and then there’s the policy taken by each individual co-owner that covers their private space and provides them with liability insurance.
Undivided co-ownership comes with one big condition: you can’t rent out your unit. Even if you have an understanding with the other co-owners, the rules of mortgage lending generally prohibit you from renting out your unit.
The same doesn’t hold true for a divided co-ownership. So, if you are planning to go work in Paris for a year, or travel the world, you might want to choose a divided co-ownership if you’re counting on being able to rent while you’re away.
When you buy a co-ownership, you might get a bit of a break from getting your hands dirty (a professional will mow the lawn, the association will take care of major renovations…), but you’re not scot-free.
A successful co-ownership requires all parties to have a good understanding of their roles, and respect for the inevitable constraints and negotiations that go along with sharing space. Asking the right questions before signing will allow you to avoid any unpleasant surprises and frustration.
Any reproduction, in whole or in part, is strictly prohibited without the prior written consent of National Bank of Canada.
The articles and information on this website are protected by the copyright laws in effect in Canada or other countries, as applicable. The copyrights on the articles and information belong to the National Bank of Canada or other persons. Any reproduction, redistribution, electronic communication, including indirectly via a hyperlink, in whole or in part, of these articles and information and any other use thereof that is not explicitly authorized is prohibited without the prior written consent of the copyright owner.
The contents of this website must not be interpreted, considered or used as if it were financial, legal, fiscal, or other advice. National Bank and its partners in contents will not be liable for any damages that you may incur from such use.
This article is provided by National Bank, its subsidiaries and group entities for information purposes only, and creates no legal or contractual obligation for National Bank, its subsidiaries and group entities. The details of this service offering and the conditions herein are subject to change.
The hyperlinks in this article may redirect to external websites not administered by National Bank. The Bank cannot be held liable for the content of external websites or any damages caused by their use.
Views expressed in this article are those of the person being interviewed. They do not necessarily reflect the opinions of National Bank or its subsidiaries. For financial or business advice, please consult your National Bank advisor, financial planner or an industry professional (e.g., accountant, tax specialist or lawyer).