capital repair

Unintended consequences in capital repair planning

Thursday, November 16, 2023
By Lyndsey McNally

Capital repair planning in the condominium market is a crucial aspect of maintaining and improving aging buildings. However, it is essential to recognize that decisions made in this process can have unintended consequences.

Although our buildings are aging, the condominium market in Ontario is still young. We are learning valuable lessons together as the oldest condos go through their full building renewal cycles.

A condominium manager who had read an article I wrote about the impact of inflation on repair projects recently asked why no one is writing articles about creative repair strategies that could potentially shelter corporations from the larger cost of full-scale replacements.

It’s not that condominium corporations shouldn’t look at alternatives when faced with projects they can’t afford, but there is a risk of unintended consequences.

Pipe lining is one example that comes to mind. For many years pipe lining was an attractive lower-cost solution to full riser replacement, and as a bonus the project was less disruptive to residents. More recently, many of these liners have failed, creating a need to replace water piping on an urgent basis. Not only has the original cost of the project sunk, but the condo must now find the money for a project they didn’t see coming so soon.

When we look at windows, retrofit projects can be good short-term alternatives, but they don’t reset the savings clock towards the larger, more expensive, full window replacement. In the meantime, economic pressures are making these projects less and less affordable every year because they are inflating at a much greater pace than consumer price inflation and the average salary.

Another thing to think about is deferring future projects in reserve fund studies. If a project isn’t going to happen for a very long time, is there harm in pushing it a year or two, or phasing it unreasonably to keep the fees lower today? Many of our aging condos are now suffering because of these past decisions, trying to live with drafty old windows and aging interior finishes because the condominium corporation delayed saving for their replacements.

Here’s one that’s near to the hearts of reserve fund planners—phasing in increases to condo fees. The fact is that longer phase-in periods equal higher condo fees in the end. Longer top-up periods only delay necessary increases to condo fees. This is why most reserve fund planners will not accept top-up periods longer than three years as “adequate”.

A recent client of mine, chosen at random, illustrates this point. The condo’s current plan is to increase reserve fund contributions 45 per cent each year for the next three years, which amounts to $371 per unit per month total.

If instead they increased the contributions by 120 per cent in the first year, the increase required over the same three-year period would be reduced to $233 per unit per month. The longer you stretch out the required increase, the larger the gap gets. The desire to reduce the cost today is natural, but the unintended consequence is that it’s making it harder and harder in the future to catch up to the level of contribution required.

The unintended consequences are not always financial. There are issues associated with safety, liability, community standards, property values, project execution, and insurability to consider.

There is still an important point to be made here about due diligence. Condo corporations should absolutely explore information about their repair options, and there is no harm in exploring creative solutions.

If you are spending on behalf of your community, be sure that you are doing the right thing, and the only way to do that is to understand all potential solutions. But always make sure that part of the process is to consider both the short- and long-term impacts as part of the decision-making process.

A more in-depth discussion on the unintended consequences in capital repair planning will be discussed during a panel on reserve funds at the 2023 Condo Conference on November 17.

Lyndsey McNally is President of the Toronto & Area Chapter of the Canadian Condominium Institute and Director of Condominium Finance at CWB Maximum Financial where she works exclusively with condominium corporations, property managers and other condominium stakeholders to develop and implement customized financing solutions. She is also a licensed condominium manager.


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