STRATA LOAN FAQs
Q. How do we know if we should borrow?
A. Deciding whether to borrow is a matter for the strata council and unit owners to consider, with input from professional advis0rs, including whomever assists in planning the contingency fund requirements. When faced with a substantial special levy, owners want to know all of their options. A loan allows the strata council to offer more payment options to the owners. In some cases, this can make the difference in achieving the 75% vote margin required to allow a much needed project to proceed.
Q. What if some owners wish to simply pay the special levy outright?
A. This is not a problem. In almost every case we see owners who wish to pay their special levy in a lump sum and be done with it. Others appreciate the flexibility a loan offers and wish to make monthly payments instead. Both groups can be accommodated by a properly worded special levy resolution.
Q. What kind of project is eligible for financing?
A. Virtually any type of repair, maintenance or acquisition can be financed, including: roofing, building envelope, garage work, windows, balconies, fire or plumbing retrofitting, elevators, security systems, landscaping, waterproofing, heating and air conditioning, general refurbishing, or for acquisition of real property. (ie – caretakers or guest suite).
Q. What about delaying the work?
A. The corporation should look at the work to be done and the consequences of delaying or spreading the work over several years. While deferring work may save financing costs, it can dramatically increase future construction costs and may negatively impact market value in the interim.
Q. How long do we have to repay the loan?
A. The repayment amortization can be up to twenty five years, but the interest rate cannot be fixed for longer than five years. If you choose a repayment amortization longer than five years, the balance outstanding at the end of five years is either paid in full or the interest rate is fixed at then current rates. This is much like renewing a mortgage after a five-year term.
Q. Should we repay the loan as soon as possible?
A. Prompt repayment (shorter amortization) will reduce the financing costs, but it is important to evaluate what the owners can reasonably afford to pay monthly. If owners cannot meet monthly payments, their ability to remain in their homes may be threatened.
Q. What is the monthly payment?
A. As with any loan or mortgage, the monthly payment depends on the amount borrowed, the term of the loan and the interest rate. In our experience, an affordable monthly payment for each owner is usually the most important issue. Financing is customized to achieve this whenever possible.
Q. What is the process to get the funds?
- Upon inquiry from you Strata Manager/Strata Council, 1 City Financial Ltd. provides a quote outlining the basic terms of the proposed loan including interest rate, term and amortization options.
If the Strata Corporation wishes to proceed with an application based on the quote, we require some basic information which is readily available from the manager of the Strata Corporation.
- 1 City Financial Ltd. provides a commitment letter and provides to the Strata Corporation’s legal council a form of special resolution and solicitors opinion required to document the loan.
- The Strata Corporation provides its members with a proper minimum 14 days notice of a Special General Meeting (SGM) in order to approve the resolution authorizing the borrowing and including the loan payments in the Strata Corporations annual budget.
- A 75% majority of the owners at the meeting, either in person or by proxy, must vote in favour in order to pass the resolution at the SGM.
- Once the resolution is passed the lender’s solicitors prepare the full security documents and provide them to the Strata Corporation’s solicitors for review and signature by council members authorized to sign on behalf of the Strata Corporation.
- Upon execution of the security documents, the loan funds are advanced to the Strata Corporation. Depending on the lender, the loan size and what the funds are being used to do, the funds may be advanced in stages as the work is completed. This entire process, including the notice of meeting, can be accomplished within 4 – 6 weeks.
Q. What about legal liability?
A. Your Strata Corporation is a legal entity created and governed under the Strata Property Act of BC (SPA). The SPA section 111 allows a Strata Corporation to borrow. Under the SPA, expenses incurred by a strata corporation must be divided among the owners by unit entitlement, so the fees and costs to set up the loan would have to be borne by all the owners, regardless of whether or not they are paying their levy monthly or paid it all at once. In addition, if there were a shortfall in collecting from those owners paying monthly, that shortfall would have to be covered by the strata corporation either from the CRF or by another special levy on all owners. While this is a legal possibility, it is practically unlikely, due to the powerful collection method available to a Strata Corporation under the SPA – see the answer to the next question. Each owner is liable for the amount of any outstanding levy owed by their strata lot to the Strata Corporation. If they have paid all of their levies, the likelihood of further liability is extremely remote.
Q. What if an owner doesn’t pay?
A. The answer to this question remains the same, whether the Strata Corporation has borrowed or not.
Whether for unpaid maintenance or special levy fees, the Strata Corporation has a powerful collection method at it’s disposal. Enforcement of payment begins with the registration of a lien on the title of the delinquent strata lot. Upon registration, this lien secures the amount owing, including legal collection costs and interest at the rate prescribed in the SPA regulations, currently 10% pa.
Most importantly, the filing establishes the strata corporation’s priority over all other debt owed and secured against that strata lot, with the exception of real estate taxes and, under some very rare circumstances, other Crown debt.
More often than not, the arrears are paid by the company holding the mortgage on the property, due to this priority position. If it comes down to a sale of the strata lot to satisfy the debt against it, the Strata Corporation will receive payment from the sale in advance of other creditors, as noted above. By way of illustration, Let’s say a strata lot owing $10,000 in property taxes, $50,000 in unpaid Strata Corporation fees or levies (including interest and legal fees for collection) and a mortgage of $200,000 is sold for $220,000. Payment would firstly go to the property taxes, then to the Strata Corporation, leaving just $160,000 to go to the mortgage company. For the Strata Corporation to come up short the sale would have to be for less than $60,000. In my 16+ year experience with this type of loan, I have not seen an occasion where a Strata Corporation came up short on collection of a levy. The owners who have paid their levy in full or are making their monthly levy contributions can rest assured they should never be called upon to make for a shortfall due to a default by another owner.