Due diligence when buying a divided condominium property

Before buying a divided co-ownership, it is important to conduct due diligence. The financial condition of the building and its management should also greatly influence your choice.

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The due diligence investigation of a divided co-ownership is generally carried out either for the acquisition of a private portion or simply to study the overall condition of the building and the management of the co-ownership by the administrators of the syndicate of co-owners.

First, let us recall the usual verifications done by the notary in view of the purchase of a building:

  • title search;
  • verification of payment of property taxes;
  • analysis of the location certificate.

The location certificate must notably demonstrate the current state of the building, including, if applicable, the numbers of renovated lots. However, regarding a co-ownership, you must know that:

- For some jurists, a location certificate concerning only the private portion may be sufficient to verify, among other things, if the selling co-owner has carried out work in their private portion that encroaches on the common areas;

- While others recommend obtaining an additional location certificate concerning the shell of the building, in order to ensure that it has been constructed within the boundaries of the land and complies with the standards set by the municipality during its construction.

Secondly, prior to proceeding with the usual verifications, a more thorough due diligence is necessary and can be summarized by the following points:

  • Have the entire building and the private portion inspected by an architect, engineer, or building technologist;
  • Carefully read the declaration of co-ownership and, if necessary, its amendments;
  • Verify that the syndicate of co-owners holds insurance, that it is still in force, and also the amount of coverage. It should be noted that under the Quebec Civil Code, administrators are required to insure the building for its new value. This verification is particularly important because many syndicates of co-owners tend to want to save on the premium amount by subscribing to insurance for a value less than the new value and even by requesting an unreasonable deductible;
  • Ensure that the syndicate of co-owners is registered with the Registrar of Companies, as required by the Business Corporations Act;

It is essential to obtain from the syndicate of co-owners a copy of the budget for the current year as well as the assessment notice, and it is also necessary to submit a request to the administration of the syndicate of co-owners for:

  • Obtaining the amount of monthly common expenses for the unit in question and ensuring that they are up to date;
  • Inquiring if the selling co-owner of the unit in question must pay additional fees to the syndicate for a restricted common area that they are using, such as a parking space;
  • Verifying the current total amount accumulated in the reserve fund, while keeping in mind that the older the co-owned building is, the larger the reserve fund should be;

Once the request is received, the syndicate of co-owners has a period of 15 days to respond and provide a statement of expenses.

Obtaining a copy of all the minutes of the general meetings of co-owners or, at the very least, those of the past 5 years will allow a potential buyer to discover:

  • If there is a special assessment related to the unit in question for the current fiscal year;
  • If a special assessment is to be expected in the near future;
  • If a non-yet due special assessment has already been voted on;
  • If there are currently pending or imminent legal proceedings against or by the syndicate;
  • If insurance indemnities are payable to the syndicate and, if applicable, if an insurance trustee has been appointed;
  • If a board of directors is in place and if the administrators are in function, as many syndicates of co-owners do not have any implementing structure;
  • If the current fiscal year foresees an operating deficit and if there are upcoming by-laws or amendments to the declaration of co-ownership that need to be adopted by the syndicate; and finally,
  • If any extraordinary decisions have been made or need to be made by the general meeting of co-owners.

Since certain property managers only provide a minimum of information citing confidentiality and to avoid any ambiguity, it would be appropriate to require, in the offer to purchase, that the selling co-owner commits to providing all the useful and necessary information for the potential buyer to carry out a proper due diligence.

Obtaining answers to all this information will effectively guide a buyer in establishing an adequate legal and financial picture of the co-owned building.

Notary-Direct, your best ally to carry out the due diligence of a divided co-ownership. All you need to do is provide any copies of location certificates that you possess, as well as the contact information of the administrators of the syndicate of co-owners and, if applicable, the contact information of the selling owner with a duly signed copy of the offer to purchase.

If you need more information on this service, please contact us
514 374-4303
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