Toronto Municipality: The Big Tax Loser with a Condo Bubble Burst

While the biggest losers in a Toronto condominium bubble collapse would be the owners of the property – there will be fallout to other stake holders (looking to the US for clear examples) including banks, federal insurance programs, and the condominium complexes (abandoned units which don’t pay their condominium fees).

But owners that decide to simply bunker down and hold on to their properties until they rise once again will face an additional burden for their trouble: higher taxes.

Toronto has a Municipal Land Transfer Tax (MLTT) – on top on the provincial land transfer tax – which accounts to about 300 million dollars a year. This tax takes place when a property changes ownership. For a cost example, on the average cost of a condo ($369,892 – Toronto Real Estate Board) the Toronto MLTT works out to $3074.52.

If property prices fall 20% the drop in city taxes isn’t the same because the rate varies based on the price of the property. This is important to realize when the cost of detached homes in Toronto averaged $650,147, and the blended value of all property types  in Toronto averaged $517,556 – a 20% reduction in property value would result in a 34% reduction in the MLTT – or about $105 million in reduced revenue for the city.

A collapsed bubble market coupled with a MLTT will result in even further loss in property values. It will be bad enough when values naturally drop in a bubble, but with Toronto scrambling to make up 100+ million in taxes, there will be dramatic raises in property tax (or other service costs) that will continue to put a downward pressure on housing values.

People who hold on to under-water equity homes will get punished for riding out the loss with new and greater taxes that were previously funded by an addiction to the MLTT.

I’m not a big fan of MLTT – I much prefer a fair market taxation rate (which is nice – more expensive properties pay more taxes) as a single, primary, tool of municipal taxation. The MLTT seems too variable, too addictive in certain markets, and especially too difficult to deal with when a municipality has to go cold turkey on a collapsed housing bubble.

Developer Accepts Full and Utter Responsibility for Catastrophic Failure

I have written many times that the final and full responsibility for critical failures of a condominium are the sole responsibility of the developer. End of story.

So I found it surprizing refreshing that Kevyn Frederick, developer for the failed Leduc, Alberta, condominium development Bellavera Green, has stated:

As CEO of Bellavera Green, I take full and utter responsibility. I felt that to speak to anything involving anybody else’s responsibility would be to minimize the impact that I’ve caused upon the people of Bellavera Green. So I had no other choice but to do the right thing and speak to only my failures.

The failure of the Bellavera Green has most likely forced significant and likely in some cases complete, fiscal ruin for the 150 people forced out of the development. That doesn’t include unpaid bills to subcontractors and other stakeholders.

People are still going to be madly angry at Mr. Frederick – and rightfully so. There is significant pain and hardship now, and lasting well into the future, from such an absolute failure of the development.

But there is an upside.

A developer that takes no responsibility acts as a roadblock to an investigation. We’ve seen bad developers destroy documents, launch counter suits, attack people’s reputations and lives, in all – do everything in their power to cloud the issue and slow down an investigative review. All at the cost of hurting even more innocent people.

Having accepted responsibility (which I am still stunned, and think is an amazing step forward), it may open up Mr. Frederick to cooperate with an investigation.

Specifically, with the developer on side, an investigation can get a direct understanding on how the “development dream” changed into a “development disaster.” A personal reconstruction makes it significantly easier for an investigation to isolate key failures or holes in current legislation and best practices that could be rectified.

With Mr. Frederick, given his willingness (the acceptance of guilt is a positive sign), we may have a very unique opportunity to improve the process of condominium development and protect future buyers a little better.

For I’m sure – and as he has indicated under questioning – he and his company are broke. So if there is no fiscal compensation, some time and assistance would be a start. Call it a form of truth and reconciliation.

Catastrophic Condo Failure Is Not Caveat Emptor – Buyer Beware

The Bellavera Green Condo, Leduc Alberta, has suffered a massive, catastrophic, failure requiring all 150 of the residents (85 units) to vacate the premises. The reasons: code-failing fire alarm system, missing or damaged firewalls, condemned exterior staircase, non-sustained heat and electric, a second phase abandoned – unsafe and unsecured, and inability for emergency vehicles to access the building.

It is unclear who has title to the units (it’s not clear if the developer handed over title to occupied units), who to go after for costs, and the developer – Kevyn Frederick – has conveniently disappeared. As with catastrophic failures of this type, residents who have mortgages will remain responsible for their payments even if they can never return to their units, or have other costs until such time they could reside again at the Bellavera Green.

In all, 150 people (and those that rely upon them) have suffered grievous fiscal harm due to the mismanagement and greed of yet another developer. And I lay the blame clearly and solely at the foot of the developer and none others. Developers have full and final control over the building and plans. It is their choice to follow legislation, or to cut corners and ignore building codes. The rest of the infrastructure – including building inspectors – is just there to try to catch errors. But these errors are not there because they haven’t been caught; they are there at the failure of the developer. Trying to pass responsibility off on inspectors is a lot like saying “you didn’t catch me, so I’m innocent.”

That’s why fools who imply that the Bellavera Green owners who put down money and purchased mortgages have a responsibility to the failure of the condominium because of “Caveat Emptor” – or “if you were stupid enough to buy into this building then too bad for you” are pathetic and dim-witted.

The whole issue of Caveat Emptor, for a situation like this, was thrown out with Supreme Court of Canada judgement of Winnipeg Condominium Corporation No. 36 v. Bird Construction Co [1995] 1 S.V.R. 85, January 26 1995 (further discussion here):

First, it is reasonably foreseeable to contractors that, if they design or construct a building negligently and if that building contains latent defects as a result of that negligence, [purchasers] of the building may suffer personal injury or damage to other property when those defects manifest themselves.

In this case, the act of negligence: that it fails to meet code, and there is a real and true concern over devastating fire; so that personal injury or damage: the effects of such fire, that –

The reasonable likelihood that a defect in a building will cause injury to its inhabitants is also sufficient to ground a contractor’s duty in tort to subsequent purchasers of the building for the cost of repairing the defect if that defect is discovered prior to any injury and if it poses a real and substantial danger to the inhabitants of the building.

And the ruling seems to support my thought that the sole responsibility for catastrophic failures like this lay solely in the hands of the developer:

Apart from the logical force of holding contractors liable for the cost of repair of dangerous defects, a strong underlying policy justification also exists for imposing liability in these cases.  Maintaining a bar against recoverability for the cost of repair of dangerous defects provides no incentive for plaintiffs to mitigate potential losses and tends to encourage economically inefficient behaviour.  Allowing recovery against contractors in tort for the cost of repair of dangerous defects thus serves an important preventative function by encouraging socially responsible behaviour.

In the end, the owners are in for a long term amount of lost monies and (more importantly) time that will be required in moving forward with their lives. It’s a sad thing, and the province needs to put better protection in place to help stave off this type of abuse by developers in the future.

Colorado Looks to Legislate HOA and Condominium Transparency

Imagine living in a jurisdiction where the HOA or condominium corporation can deny your document requests with impunity. If you live in Colorado, that is exactly what can, and does, happen. State legislation indicates the association can deny providing documents unless there is “proper purpose” for the request.

There is absolutely no way to determine proper purpose, and owners are being forced to hire lawyers in order to get the documents they need. That is totally ridiculous.

Thankfully it looks like HOA regulations in Colorado are going to get a huge overhaul. In 2011 the state started tracking complaints voiced against HOAs – and the information is amazing. Complaints are not focused on pets, parking, and paint – which most people have always assumed. The complaints are about board and associations being closed for review, tightly controlled, and abusive in the use of their power.

From the 2011 Annual Report of the HOA Information and Resource Centre:

An additional and perhaps one of the more troubling complaint types the Office heard was that
the HOA board or manager was harassing, discriminating or retaliating against homeowners.
Many homeowners felt that their boards had singled them out and were arbitrarily fining them
for violations, when they were not in violation; engaging in selective enforcement of covenants;
and precluding them from participating in meetings.

The 2011 Report is a great read – and truly eye opening about the nature of a person’s relationship with their HOA. It’s a well suggested read for anyone involved in condominium and HOA work.

Anyways, it’s always nice to write a blog post about how a group or organization “gets HOAs and Condominiums” and a big, positive, tip of the hat to the Colorado State Legislature in drafting new legislation to address some well needed change.

Compulsory Board Education for Condominiums, Strata and HOAs

In 2008 Florida enacted mandatory education for condominium boards. From some accounts the move has been an overwhelming success, and to others it has been simply more paperwork.

Having argued that the housing represents the largest asset, and form of enforced savings, that all but a few people will ever have – extra diligence and care should be taken by boards in managing condominium and HOA complexes. A poorly educated board can cause significant hardship to a huge amount of people, and jeopardize their financial well-being with only a few poor decisions.

To that, I fully support some sort of mandatory education process even though this is a volunteer, non-profit organization. I recognize this education requirement is more restrictive than business boards which have no mandatory requirements.

It is important to realize that this is mostly an issue for self-managed condominiums or those that don’t retain a paid manager at their board meetings.

A condominium management company fulfill the need for mandatory education. Management companies (generally) have exceptionally qualified individuals who know the local and federal legislation, and are trained in manners of ethics and process. They act as an in-person book of knowledge for boards. They are the best resource (and are worth a lot of the management contract cost) for a board.

But for those that don’t have a manager at their board meetings, training of the members is essential.

For disclosure, I serve on the Canadian Condominium Institute’s National Executive; teach condominium board education classes through the CCI, and our Ontario chapters in conjunction with ACMO have presented opinion to the provincial government supporting director education.

Arizona State Senator Thinks HOA Off-Leash Fining is Mostly Very Silly

I fully support Senator Lori Klein’s comment that the off-leash fines issued to homeowners (which she quotes as 25% of all HOA fines) are, as she states, “Most of it is very silly.” I would actually go further and find that most all fines handed out by HOAs tend to be “very silly.”

The problem is I think Senator Klein is picking the wrong fight – highlighting off-leash rules is one that can be easily refuted using real life experience. Even in my own life a close friend’s dog (who was on leash) was viciously attacked by an off-leash dog which charged off  its owner’s front yard. The only reason her dog is alive is because of a local neighbour bludgeoned the attacking dog with a bike lock until it released its grip on her dog. The attacking dog was later removed from the owner and put down. Her dog was put through excessive vet bills. Something she was never compensated for.

I’m also familiar with an acquaintance who laughed at the fact his dog jumped his backyard fence and killed two dogs walking by. This was especially cruel as the dogs’ teen owner was right there with them, and failed to save them.

Senator Klein highlights an elderly resident that keeps getting fined for her tiny Chihuahua. Agreed, this example seems very silly, and I would hope that the HOA realizes fines are not a tool to enforce compliance, but a last resort after trying other methods.

Leashing dogs in public, based my own experience, is a necessary evil. Good dogs are sadly affected by leash laws, but they are required to help control those that are uncontrollable.

Arizona state lawmakers are currently considering a bill put forward by Senator Klein to allow insured dogs off-leash. I would have to say I object to such allowance.

Indian Condo Recycles Organic Waste, Grows 300kg Grapes

Most municipalities now have recycling programs for single residential and low density housing. With curb or alley pick-up, multi-bin pickup works well, is reasonably economical, and has proven very successful in reducing the volume required to dump.

Condominiums have proven significantly more difficult to bring on line. Many condominium were built 10 or more years ago – and don’t include appropriate space or facilities to recycle. Personally, my first condo we bought was a 1970s built building and while we tried implementing a recycling program during my time on the board, we cancelled it shortly thereafter. There wasn’t an appropriate space that could collect the recyclables and allow access to a company to remove the materials.

Even new builds may not have appropriate space – there is little profit for builders to add additional space just for recycling.

For condominiums that do successfully recycle, they tend to be limited to hard-materials (cans, glass, papers). There is little opportunity for kitchen or biodegradable waste.

In the gated community of  Beverley Park-1, Gurgaon, India there has been a very successful pilot project with biodegradable. In part driven by illegal dumping in their area, they looked at a solution that would empower them to help address the dumping problem locally.

The condominium has been using organic waste converters to produce manure for their orchards, mini plantations and park. The success of the program this year has allowed them to harvest over 300kg of grapes, and a variety of other fruits including oranges, lemons, and peaches. They now have been able to fertilize 4,000 sqm or green space without artificial fertilizer.

Most North America condominiums aren’t as lucky to have available or owned green space to use processed organic waste on. For those that have the available space, municipal and federal laws can prove a significant deterrent as well to organic recycling.  Successful projects, like this one in the McKee Condominiums, Bellevue, Washington, are few and far between.

In all, there are significant barriers for existing condominium in the face or recycling – traditional or organic. A proactive municipality could change that going forward. Making recycling facilities a requirement of any new condominium or HOA development, along with new legislation that promotes and encourages recycling would go far in bringing around a green city.

Dog Poo Bad, Flipping the Bird Totally Cool

I’m a big fan of ensuring that residents can communicate with each other, even if what they want to communicate is that they hate the board. Condominium Boards tend to be very sensitive, baby-soft-skin sensitive. I’m not sure what it is, but the moment they get on the board they won’t stand for any negative comments. Part of what drives this SOS (Sudden Onset Sensitivity) comes from board members access both to money (condo fees) and a lawyer (most corporations have a lawyer on call for foreclosures, advice, and general council).

So when Steven Preu was found by a judge to be well within his First Amendment Rights to flip the bird to the board, security cameras and the condominium manager; it seems reasonable to me. Flipping the bird is an expression of aggravation and completely impolite, and while society works better when everyone is polite, I myself have flipped the bird at times (to drivers mostly, not yet in a condo related space myself).

The judge also confirmed his right to write “insulting messages” within the memo section of his checks to the corporation, and his upheld Mr. Preu’s right to post messages in the trash room, and on a neighbour’s door.

Seems pretty good so far, but Mr. Preu’s actions at free speech weren’t completely ok, and even I knew – when reading the case – when he went too far.

He additionally blocked open fire doors that are required to be closed, and closed and obstructed fire doors required to be open. That is just plain dangerous. Fire doors must always be treated with respect.

Finally, he twice decorated common areas of the condominium with bags of dog poo, labeling the condo president’s name on the bags. Placing the name of the president is a non-issue to me (but likely does a fine job piercing the president’s skin), it’s the act of littering that become enforceable.

I’m just glad that the bags of poo weren’t flaming bags of dog poo – a fatal mixture with fire doors that were interfered with.

Florida Looks to Ban Condominium Raising Fees to Cover Delinquent Owner Shortfall

Senator Chris Smith for Fort Lauderdale has proposed a Florida senate bill that would make it illegal for condominium associations to cover delinquent owner payment by raising assessments on owners who pay their fees regularly.

To start with, it’s very important that a condominium raises the funds required to maintain the property, utilities, and safety of the building. That’s the primary purpose of the board, and performing proper maintenance and paying bills ensures that owners retain property that has (within the market) maximum resale value and opportunity.

When a large amount of delinquent owners exist in a condominium, the board fails to collect the revenue required to meet their duties to maintain the building and pay the bills. As corporations have limited powers to generate funds, they raise the contributions until the responsible, paying, owners meet the financial needs of the condominium corporation.

This can mean, where we see some condominium with 2/3 delinquency – that the responsible owners are paying 3x the condo contributions they should be. This is a great hardship.

Historically, this issue of non-payment hasn’t been an issue. But the combination of the housing crash, high unemployment levels, and most importantly – a foreclosure process in Florida that is now taking 12-24 months (gaaahhh!), is leaving a significant number of condominium raising fees on owners to cover costs.

Traditionally, non-payers would be foreclosed on, and the corporation would get the outstanding sums in 30 to 90 days from filing. That, with only a few delinquent at any one time was fiscally manageable. Now, with the lack of ability to collect in a timely manner, corporations are facing massive debts, shut off of services, and dangerous buildings.

At some point, even if it is two years, the corporation will get paid. The question is what to do in the meantime. If the Florida legislation moves forward – preventing responsible owners from paying for non-payers – the question still arises: where does the corporation get the money it needs now.

Corporations taking out loans works well in great economies because the corporation can back the loan with their ability to levy condo contributions. But when the debt issue arises from the very issue of being unable to collect contributions, there is no ability for a corporation to find money.

The legislation sounds all good and dandy to protect the responsible owners from directly paying more while the state courts take so long with the foreclosure, but that just puts the costs onto the building and services. Non-existent or reduced maintenance can have as great or greater cost on residents trying to resell as an increase in their condo contributions.

It’s a tough position, but the answer is not to limit the hands of the condominium corporation is sourcing the funds needed to maintain and operate the condominium corporation.

The real answer is for the Florida legislature to properly fund a court process that addresses the insane time it takes to foreclosure. Instead of responding to the substantial increase in foreclosures they have let the current system drown. It’s bad form to write more laws when the problem lies with the underfunded court system.

Move In, Have Money, Demand Change

Having just congratulated the Ministry of Sound for proactively participating in local redevelopment, and successfully preventing a 41 floor condominium from being built too close to their business of “being noisy”, I have a great example of the reverse.

Miss Lin Yu Yang, of the Rivergate Condominium in Robertson Quay, Singapore, is successfully getting the attention of local government officials to cut out local street drinking and early morning use. The Rivergate is located in the Robertson Quay, an extremely popular night club, hotel and restaurant area. The very famous, huge, nightclub Zouk is located there.

Having recently purchased a ~3.2 million USD condominium, Miss Lin has become distraught over the level of night life noise. It’s too much for her, and she wants the first Singapore no-alcohol zone to surround her home.

Seriously. You’re going to spend that huge amount of money on a condo, and not do your research if it is suitable for your living needs? Drive by at night?

If I had enough to buy an expensive unit like that – I would definitely require a week long residency – even if I had to rent the unit out for that week.

As Miss Lin is quoted:

If we ask them to stop, they may say: ‘You think that just because you are rich, you can tell us what to do?

Well, yeah. I think they would.