Shared facilities exist at many condominiums and are the bane of the existence of managers and directors alike. During development, many stakeholders, from city planners to developers, each with their own agendas, converge to shape these spaces.

However, amidst this complex negotiation, the voices of future condominium corporations—the very entities that will bear the brunt of managing and maintaining these shared facilities—are conspicuously absent. This oversight frequently results in convoluted agreements that are difficult to interpret and implement, leaving volunteer condominium boards grappling with unforeseen responsibilities and costs.

Starting out wrong

When a developer sets out to develop a condominium, there are many players at the table, all pushing for their own interests. The city wants a lively streetscape, with retail spaces at the base of the building. The developer wants to maximize the sellable gross floor area and profit. Another division of the city wants a new park or daycare. The province wants affordable housing interspersed throughout the condominium units. The construction lender may not be willing to lend enough money to build all 70 floors of the building into a single condominium, which may result in the developer planning to register two condominiums in the same tower.

The result is a highly complex development with multiple parties occupying the final building or complex. The relationship among the various parties and how they will share in costs is set out in a site reciprocal or sharing agreement.

The one party who is not at the table during this negotiation is a representative of the condominium corporations who will end up responsible for the lion’s share of the costs and related efforts. And everyone at the table seems to forget that the volunteer condominium boards are lay people, with no formal training or special skills in operating a complex multi-component facility.

The outcome is often a shared facility agreement that is a quagmire of legal mumbo jumbo that is next to impossible to interpret and, even when interpreted, doesn’t always align with the as-built construction or worse, cannot be implemented as written.

Many agreements completely omit significant and obvious shared components. For example, including a line item related to snow removal from a shared laneway, but not speaking to a $500,000 electrical switchgear or a $1-million roof that serves both parties. Many agreements set out the requirement for shared facility committees, but then structure in annoying voting requirements. A party who is only responsible for 1 per cent of a cost may hold the deciding vote in a setting where unanimous consent of a shared facility committee is needed.

Get consensus early

If your condominium has shared facilities, you need to consider the agreement provisions from two perspectives: how are operating costs shared and how are capital costs shared.

Early in the life of a condominium, everything may seem to be going swimmingly. There are some costs, like cleaning a shared garage or changing some light bulbs, that are minor in nature. Utilities are hopefully well sub-metered and appropriately shared. The parties reach some harmony with respect to sharing the costs. They may even reimagine the agreement in a way that feels more logical to all involved. For example, you clean beyond this arbitrary line, and we’ll clean the rest. That can work reasonably well for several years, but often causes serious problems when major capital work becomes necessary.

When hundreds of thousands or even millions of dollars are involved, suddenly everyone takes a more serious look at the legal wording of the agreement and runs for cover. This can result in a condominium corporation being on the hook for significant costs that they have not reserved for.

All condominiums with shared facility obligations should have their agreement reviewed early on by their legal counsel and an engineer familiar with interpreting shared facility agreements. This should start with a summary of what is shared, ideally resulting in a list of shared equipment, components and spaces that all parties can agree to. Shared equipment might even be labelled as such on site. It should also include a review of the site to identify components, which are shared in practice, but have been omitted from the agreement.

Renegotiating the terms or amending the agreement twenty years before any significant capital work arises will be much easier than attempting to do it when a major capital project is imminent.

Some areas that deserve particular attention in this review:

• • Incoming water services and outgoing sewers, cisterns and related sumps: these may be covered by some general wording, but it is better if they are clearly identified.
  • Main electrical switchgear and transformers: not just the power consumed, the equipment itself.
  • Horizontal boundaries: for example, the ground-floor retail patios sit on top of the commercial/residential parking garage. Or the residential amenity terrace sits on top of the roof of the office component. Delineating who pays for repair and replacement in these cases is very difficult, but important.
  • Roofs: does the roof on the 20th floor of the residential tower also serve the office component located on floors 2 to 6?
  • Suspended access equipment: if there is a multi-floor office or retail entity at the base of a residential high-rise, they will need to use the suspended access equipment to repair their walls.
  • If garage drive aisles and ramps are shared how will the ventilation, lighting, sprinkler systems and drains be handled, considering that these systems span both the shared drive aisles and non-shared areas?
  • If certain service rooms are shared, is all the equipment located in the service room shared? If not, does the sharing of the room include air conditioning and ventilation equipment serving that room? Is the floor waterproofing shared?
  • If site landscaping is shared, but it is located above one or more parking garages, who pays for what when the garage roof decks are excavated and re-waterproofed?
  • Have shared facilities been properly separated and sub-metered so the parties are paying their appropriate share of utilities?
  • At townhouse sites with significant roadways, which water mains and sewers located under the roadways are shared? If the phase two townhouse condominium corporation’s mains and sewers run under the phase one roadways, who is responsible for paving when the roads get dug up to replace the pipes?
  • “Shared with shared” components, for example, central plant equipment, like boilers or chillers, which serve shared amenities as well as serving one entity. Will a share of the cost of those components be considered shared?

Reserve funds for shared facilities

Another thing that needs to be understood early on is how the reserve fund for the shared facilities is to operate. Many shared facility agreements set out the need for a shared facility committee. This committee may be required to develop an annual budget for operating costs. Some agreements require a separate reserve fund study and reserve fund account for the shared facilities. But many do not, particularly if one or more of the sharing entities is not a condominium.

If no shared facility reserve fund is required, then condominiums who are party to the agreement will still need to reserve to cover their shared obligations. This can be handled by including the corporation’s portion of shared costs in their main reserve fund study. This is often the simplest solution, so be glad if this is how your shared facilities are structured.

Some agreements call for a shared facility reserve fund, but don’t clarify the mechanics of the funding. This is a particular issue for agreements that include many different sharing ratios. For example, in a three-way shared agreement, the cost of the boilers may be shared on a 25/60/15 ratio, whereas the site may be shared on a 33/33/34 ratio. When different sharing ratios exist, I recommend against using a single reserve fund.

Co-mingling money that is contributed according to different percentages often creates unnecessary confusion. Let us say the three parties above set up a single account to accumulate money for both the boilers and the site. If the fund contained $110,000 of the 25/60/15 boiler dollars and $20,000 of the 33/33/34 site dollars, and then the entities wanted to spend $120,000 on the boilers, they would face a challenge. They cannot supplement the $110,000 contributed per the 25/60/15 boiler ratio with $10,000 of the 33/33/34 site dollars because then the parties would be contributing towards the boilers in the wrong share.

In these cases, I recommended either one reserve fund study and one reserve fund account per sharing type or separate reserve accounts for each entity. In the example, there could be two shared facility accounts—one where all parties contribute towards the boilers and a second where they contribute towards the site.

Alternately, a single study can cover both the boilers and the site, but in this case a separate reserve account would exist for each entity. The study would include two cash flow analyses, one for each entity, reflecting the aggregate of their shares of each category of sharing.

Some accounting software can track the contributions by each party and allocate each invoice per the appropriate sharing type, but we often find that managers using these systems struggle to reconcile the costs, making it difficult to know how much of the balance in the account is attributed to each entity. This opening balance information is needed for each reserve fund study update.

If all the sharing ratios are the same, for example, if two towers share the lobby, amenities, site and garage all in a 48/52 ratio, then one shared facility reserve fund study can be completed and one reserve account can be used for both parties. In this case, all the dollars in the account are 48/52 dollars, so they can be used indiscriminately.

Responsibility for repair

At some sites, there is a shared facility committee that acts very much like the condominium’s board, overseeing a manager and budget for the shared facilities. They take care of all repairs for the shared facilities.

At other sites, one party is assigned responsibility for arranging for repairs to certain shared facilities and then presents an invoice to the other sharing party after the fact. This responsibility can be set out in an itemized list in the shared agreement or can sometimes flow with property boundaries. In this case, there is generally a lot of dispute because the party receiving the invoice may feel that the work was unnecessary or excessively expensive.

Lack of alignment

Another layer of complexity exists if the motivations of the parties represented on shared facility committees are not always aligned. One party wants to keep the shared amenities in tip-top shape and the other just wants to minimize fees.

Or a commercial sharing partner wants to significantly upgrade the streetscape outside their retail units and unceremoniously presents the residential condominium with a bill for their share of the cost. All parties involved in a successful sharing relationship need to work hard to accept that the world will not always be perfectly fair and that compromise is sometimes needed to keep the peace. As with everything, open lines of communication and transparency are key.

Recommendations for shared facilities

So, my warning to those with shared facilities is to proceed with caution. Understand what your agreement covers and what it misses. Create clarity early. Don’t just focus on utility costs; think about capital costs, too. Work hard to develop a strong working relationship with your sharing partners. Set out a vision statement for the shared facilities that attempts to align expectations. And keep the lines of communication open. If something feels unfair, it is very likely your sharing partner has something else they think is unfair. If you work closely and respectfully together, hopefully you can have a successful, war-free shared facility experience.

Sally Thompson, MSc P.Eng. LCCI, is a managing principal at Synergy Partners and president of CAI Canada.

Readers can find more insight into the complexity of shared facilities in Sally Thompson’s new book, Condo Questions and Answers, Ontario Edition, published this year by James Lorimer & Company. Her four-part book, which was written for condominium owners and directors, addresses the most common and unexpected problems facing condominium owners.