Many first-time condo buyers really resent maintenance fees. Our clients have expressed feelings that maintenance fees are “cash grabs” and that they seem to be shrouded in mystery. This is, however, far from the truth. So, what are maintenance fees and what expenses do they cover?
What are they? Maintenance fees are calculated by dividing your total square footage (including parking and locker) by the yearly operating budget so that your payment matches exactly the share of your ownership in the building. Your total yearly fee is then divided into twelve months so that you can make twelve equal payments. All buildings are registered as not-for-profits, so, assuming no corruption in the condo board (link to article), all your maintenance fees go towards the maintenance of the building (which is, after all, your asset.)
What do they cover?:This is different for every building, however, in broad strokes, maintenance fees usually cover six expenses:
- Interior/exterior maintenance: Such as, cleaning the common areas, landscaping in the outdoor space etc.
- Utilities: Most condo fees include some of your utilities. This can often mean heat, water and sewage bills. Some older buildings also include Hydro.
- Reserve fund: A portion of all your maintenance fees go towards the reserve fund. This fund ensures that there is always cash on hand in case of large expenses. A healthy reserve fund is the sign of a well run building.
- Insurance: most buildings will include a blanket insurance policy on the whole building. However, if you need a mortgage on your property the mortgage company will often insist that you get your own more comprehensive policy.
- Security: This could include keeping the lights on in shared spaces, concierge, buzzer system, security detail, etc.
- Amenities: Such as a gym, theater room, rooftop terrace and pool.
Don’t ever think that you will pay less maintenance if you buy a house. Maintenance fees are more like forced savings plans because they require you to pay a small fee monthly rather than large fees whenever a problem occurs. Take this example: most experts recommend that homeowners save 1% of their home value per year to pay for maintenance. So, if you have a home worth $500,000 that means you’d be spending $5,000 per year in general maintenance. That $5,000 works out to $416/month, which is roughly on par with the maintenance fees on a condo that is worth $500,000.
Have questions? Get in touch.