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Minimum wage hike to follow new condo fees

Impact unclear as industry stares down costs of recent legislative reforms
Tuesday, December 5, 2017
By Michelle Ervin

The minimum wage hike may sting more in condo communities than other types of households as they face new costs and fees associated with recent changes to Ontario’s condo laws.

The province recently passed the Fair Workplaces, Better Jobs Act, which will raise the minimum wage $3.40 per hour over the span of a year. At $11.60, the current minimum wage was up 20 cents as of Oct. 1, 2017, and will climb to $14 in the New Year before reaching $15 on Jan. 1, 2019.

The minimum wage hike of $2.40 per hour on Jan. 1, 2018, will land the day after the first payment to the newly established Condominium Authority of Ontario (CAO) comes due on Dec. 31, 2017.

Cost pressures converge on condos concurrently

Created under the recent changes to Ontario’s condo laws, the CAO has been tasked with providing services including director education and dispute resolution on an operating budget based on a fee of roughly $1 per unit per month, to be remitted by condo corporations on behalf of owners. Corporations may see savings elsewhere as, for example, the new path for dispute resolution is designed to divert common condo conflicts from more expensive court proceedings.

The recent changes to Ontario’s condo laws also introduced requirements for condo corporations to communicate more frequently with owners, which comes with increased costs that clients are expected to shoulder as condo management companies look to recover these expenses. Management companies and their managers are simultaneously staring down new licensing fees as related legislation brings the profession under regulation.

“It’s unfortunate that it all is kind of coming together at the same time,” said Jeff Lack, director of internal operations at Wilson Blanchard.

Lack said it’s hard to predict the precise impact of the minimum wage hike on condo communities. Its impact may be felt directly in communities where third-party contractors, such as cleaning service providers, pay their employees minimum wage or just a few dollars more. Its impact may also be felt indirectly in households of all types, as employers who rely on minimum-wage workers, such as grocers, adjust their prices to reflect this increased expense. And price inflation could put upward pressure on salaries and wages across income brackets as they lose some of their purchasing power, said Lack.

With the impact of the minimum wage hike murky, it’s difficult to account for any increase in costs in condo corporation budgets for the coming fiscal year, he said.

Changes in fiscal outlook affect status certificates

However, as the impact of the minimum wage hike becomes clearer, boards may have to update their status certificates, condo lawyer Denise Lash confirmed via email. Status certificates, which help prospective unit purchasers evaluate the financial health of a community, speak to the accuracy of a condo corporation’s budget, she said. They must reflect any projected budget shortfalls as soon as they materialize, whether caused by the minimum wage hike or other events.

“There is also a requirement to indicate whether or not common expenses have gone up since the date of the budget for the current fiscal year if, for example, the board decides to do a revised budget to take into account additional costs,” said Lash. “This could be minimum wage impact on various contracts and may also include the Condo Authority fees and increased management fees.”

In the absence of a budget revision, the condo corporation would need to alert prospective unit purchasers to foreseeable common expense increases and special assessments via the status certificate.

“This is where I think that condo managers/board members who are preparing their status certificates need to be careful and determine what, if any, impact the recent changes will have on common expenses,” said Lash.

For his part, Lack suggested that cash-flow challenges and special assessments are unlikely as he anticipates several months will pass before the impact of the minimum wage hike is felt. He said he didn’t expect to see these additional expenses reflected in corporation budgets until the following fiscal year at least.

Contracts to influence community-specific impact

The impact of the minimum wage hike will vary from condo corporation to condo corporation, depending largely on their service agreements, Lack added. He said he foresees low-rise and townhouse communities being somewhat insulated from the impact compared to high-rise communities, where security — one of the services that stands to be most affected by the minimum wage hike — represents a major budget line item.

Security consultant David Hyde echoed Lack, predicting that rising hourly rates will have a sizeable impact on security service providers in condo communities. Hyde said guards working in this industry are generally compensated at a rate a little bit above minimum wage, so the hike could play out in one of two ways, both with their downsides.

“There’s pressure on the condo security companies to either bring the rates up accordingly, and the condo boards have to swallow that additional cost, or if they leave the rates right at the new minimum wage, then they’re risking a much higher turnover and lower service levels,” he said.

Not surprisingly, the risk of maintaining low pay rates outweighs the additional cost in Hyde’s assessment. He pointed to the importance of the role guards have in protecting people and property.

“Overnight, the security person is the only one that’s there on duty on behalf of the condo corporation, protecting hundreds of millions of dollars in assets,” said Hyde. “If they don’t patrol properly, if they don’t go and check those rooms properly and there’s a leak or problem, it could lead to a significant damage of property.”

Mitigating factors depend on terms of agreement

Many condo communities already underinvest in security, the security consultant said, scheduling to have on hand only one person, who often gets grief from residents for leaving the concierge desk to complete their other critical duties. With existing security resources stretched, few communities can afford to shave more hours off of the security schedule in hopes of offsetting the increase in costs expected to come with the minimum wage hike, he said.

Multi-year contracts for services such as security could buffer some condo communities from seeing an impact from the minimum wage hike for a while, said Lack, depending on the terms of the contract, such as escalation clauses. However, Hyde pointed out that these contracts are usually subject to renegotiation or termination with notice, which can be initiated by either party.

It depends on the specifics of a contract, which can also include provisions for fee increases if the minimum wage rises, said Lash, giving corporations a compelling reason to review their service agreements as the hike in hourly rates looms.

In the meantime, condo communities will have to wait for the effects of the rising minimum wage to work their way through the economy to gauge its actual impact.

“It’s a bit like there was an unknown for a long time with the new legislation, and condos kind of sat in the dark,” said Lack. “Now they’re sitting in the dark with the minimum wage hike.”

Michelle Ervin is the editor of CondoBusiness.

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