The bottom line on strata fees

A reader was telling me recently about the large number of “For Sale” signs in her strata development in Maple Ridge. Of the 59 units, seven are on the market and three of them are forced sales by banks.

What piqued my interest was her comment that “the original strata fees were nothing more than a ‘come-on’ ” by the builder/developer. When the majority of owners approved a 30-percent budget increase, two of the owners balked and walked.

So how common is it for developers to lowball strata fees to lure buyers?

Not very, according to Vancouver lawyer Lisa Vogt, who works extensively with real estate developers. Vogt says developers want their strata fees to be competitive, but won’t risk their good names by under-reporting expenses in the interim budgets presented to buyers in new projects.

“Certainly, the developers we act for, and I would think the majority of developers in the Lower Mainland, this is their business and reputation is huge for them,” she says.

Tracie McTavish, president of Rennie Marketing Systems, agrees.

“Most builders and developers are building for the long term, and for them to go to the time and effort and incredible stress and challenge of building a building . to have a bad taste in their mouth because the budget’s not accurate, I mean, it’s just suicide.”

Still, it has happened. Mike Mangan, author of The Condominium Manual, recalls a case where a developer of a highrise didn’t budget for maintenance of the building’s elevators.

“Elevators are one of those things that are expensive to maintain,” he says, “and that was just one aspect of a number of omissions, but it reflected the developer’s endeavour to keep the expenses low, so strata fees would be low to attract buyers.”

According to Mangan, strata owners have always been able to collect the shortfall between the proposed and actual operating expenses in the first year. And since July 1, 2000, when the Strata Property Act came into force, they’ve also been able to levy a penalty against developers, ranging from two to three times the budget shortfall.

Lisa Vogt knows of only one case in the last 10 years where a developer had to pay such a penalty. “And in that case, it was a developer new to the market, hadn’t built before and it was kind of a one-off project for them,” she says.

I asked Vogt, Mangan and McTavish what advice they have for people buying into new strata projects and looking to keep strata fees down.

– Avoid buildings with extensive landscaping and amenities, suggest Vogt and McTavish, especially “wet” ones (pools, hot tubs, water features) that require expensive maintenance and – when warranties expire after a few years – more money for repairs.

– Know the going rates. Fees in new buildings in downtown Vancouver with standard “non-wet” amenities generally range from 35 cents to 38 cents per square foot, says McTavish. Buildings with luxury amenities are in the low 40-cent-a-square-foot range.

– If you’re buying in an urban area, says Vogt, find out what security measures are in place. Owners may feel they need more than the developer thought they did.

– Mangan suggests finding an experienced realtor who specializes in stratas and knows what questions to ask of the developer, including: Has the developer paid into the contingency reserve fund?

– If you’re concerned about the developer’s interim budget, ask a lawyer, accountant or property manager for an opinion.

– Vote in support of regular maintenance because in the end, a poorly maintained building will cost you more.