The Situation

Early in 2020, a condominium corporation of approximately 200 units approached Morrison Financial to assist in assessing various financing options available to the corporation, which included assessment and borrowing. The condominium was part way through the projects, had depleted its reserves and was experiencing a financing shortfall in the range of $3,900,000.

The project which was currently underway included the following components:

1. Fan Coil:                                         $1,500,000

2. Parking Garage:                         $2,700,000

3. Balconies:                                     $1,000,000

4. Cladding:                                      $1,000,000

5. Project Management:                  $200,000

Total Project Budget:                $6,400,000


The Problem

With a total project budget of approximately $6,400,000, and with $2,500,000 of corporation funds spent to date and a shortfall of $3,900,000, the condominium corporation needed to determine how it would fund the shortfall. 

There were three options for them to consider:

1. Defer the project until sufficient funds in the reserve had been built up.

2. Assess the unit owners for approximately $19,500 per unit to pay for the repairs.

3. Borrower all or a part of the $19,500 per unit.

Ultimately, the borrower was able to enter into 24-month payment plans with some contracts, allowing them 24 months to build up adequate reserve fund amounts to about $1,900,000, and so the shortfall was reduced to only $2,000,000.

Separate from the payment plan above, it was determined that option 1, defer the project, was not an option and so the corporation needed to decide, would each owner need to pay about $10,000 towards the shortfall, as assessment, or would the corporation borrow the money using a condominium corporation loan to pay for the shortfall.

How Did We Help

Because there is sensitivity to how a loan option and assessment option is described and presented, our team was brought in to assist with:

1. Present various options to the unit owners and board of directors.

2. Assist the board in understanding unit owners’ preferences.

      3. Assist/guide the board through the process of implementing the loan.


What were the condominium’s options?

  1. Assessment of the owners’ only: Under this option each owner does not have the choice of whether to participate in the project owner not. Each owner must pay their proportionate share of the loan, equal to approximately $10,000.00. One option was to collect the assessments over the next 12 months. By selecting to assess owners over the next year instead of immediately, the condominium corporation may realize an increase in construction costs from 5% to 20%. It was determined that this option was not in the best interest of the condominium corporation due to the risk of price escalations in today’s current environment.
  2. Borrow 100% of the loan amount – no opt-in, no opt-out:

    If owners voted in favor of the borrowing – 50%+1 of owners – then all units would participate in a condominium corporation loan. Several questions had by the owners included:

    1. The Loan is to the corporation, not each owner.
    • The condo corporation provides security to the lender by way of a general security agreement and a condominium loan agreement. No individual information is required from owners to obtain this loan.
    1. The Loan will not impact your personal borrowings.
    • There are no encumbrances registered against any individual unit.
    • The loan will not affect mortgages on individual units.
    • If your unit is sold while in the loan, the buyer and seller will negotiate on a case-by-case basis.
    1. The Loan will form a part of your monthly fees.
    • The condominium corporation makes one monthly payment to Morrison Financial.

      OPTION: There is the option that some unit owners participate in the loan and others’ do not. By allowing this, the corporation is being flexible to those owners who would benefit from the loan, without hindering those owners who have access to excess cash to pay for their portion of the assessment upfront – it is in all aspects of the word, a win-win scenario.

  3. Assessment of the owners’ for 50% of the shortfall and borrow the balance:

    In this scenario the corporation would provide the owners the opportunity to choose whether they wished to borrow their proportionate share of the $1,000,000 (half of the shortfall) or pay out their entire proportionate share of the $2,000,000. By providing owners’ to participate, again the board was trying to be accommodating to each unique financing situation.

    Each owner would be assessed $5,000.

    In addition to the assessment, the board was prepared to offer the option to owners to opt-in or opt-out of the loan. Note that not all unit owners are obligated to participate in the loan and may pay their proportionate share in full, outside of the loan. The result would have been a $40/month/unit increase to the condominium due to the loan, of which $20 would have been covered by amounts already collected by the reserve fund contributions. (Assuming a payback period of 15 years.)

The Decision

Ultimately, the board of directors needed to decide between the 4 options:

  1. 100% Assessment for shortfall of $2,000,000: All owners must pay within the period specified by the board of directors the amounts over either 1, 2 or 4 equal payments.
  1. 100% Loan with all owners to participate: There is no option for individual owners to opt out of the commercial condominium loan.
  1. 100% Loan with individual owner option to participate: Each owner may participate or not participate in the loan according to their own financial circumstances.
  1. 50% Assessment and 50% Loan with option to participate: All owners must pay the assessment for 50% of the proportionate share of the shortfall of $2,000,000. Each owner will then be given the option to participate or not participate in the loan.


The option selected in this case was OPTION 2 ->  100% of all owners to participate in the loan.

What Were the Next Steps?

Following the presentation to the corporation which Morrison Financial hosted, the next steps followed were:

  1. Each owner will receive a breakdown of how each option effects their specific unit and its individual monthly payment.
  2. A survey will be circulated to gauge sentiment on each option.
  3. If any option which allows for borrowing is selected, follow up information and opportunities to submit questions will be available.
  4. A borrowing by-law will be drafted and voted on by the corporation. This by-law requires that 50% +1-unit owners vote in favor for the option to proceed.

Where We Are Now

The loan example discussed herein, is 75% funded and will be fixing shortly for the duration of its agreed to term length.

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