Strata financing is another option to consider
As a strata owner you’re used to paying a monthly fee. It comes with the territory and covers regular maintenance and other common costs associated with your property. All strata corporations build a contingency reserve fund from the fees to cover future expenses and, to a degree, unexpected costs.
But sometimes strata unit owners face special levies due to a costly and/or unexpected bill that the contingency fund can’t cover. This may include work such as elevator and boiler upgrades or window and roof replacement. Special levies can be expensive and require a lump-sum payment, sometimes running into the tens of thousands of dollars per unit.
Rather than paying a large, one-time fee, there’s another option your strata corporation can consider. Depending on your strata and owners’ situation, a strata lease or loan can be advantageous. Let’s explore the benefits they provide.
Benefits to the strata corporation
According to Michael Mullen, leasing advisor with BlueShore Financial, strata loans are beneficial to a strata corporation because the funds are lent to the corporation, not to the individual owners.
“Strata loans allow the strata corporation to manage larger projects more easily by providing owners the option to pay some or all of the costs in smaller monthly instalments.”
Additional benefits to the strata include:
· No delay starting the work; major projects can be completed when they’re needed and, just as importantly, based on current costs.
· Payments for larger projects can be spread out over a number of years.
· The corporation doesn’t have to enforce the collection of large, one-time lump-sum payments, which some owners may have trouble financing.
· The personal credit of individual owners is not a factor in obtaining the loan.
· The cost of a strata loan can be added to the corporation’s budget; current and future owners will share the costs.
Benefits to the strata owners
“Strata financing offers advantages to the strata owners as well,” adds Mullen. “Owners' personal savings aren’t impacted to the same degree they would be when paying a large, one-time payment. Smaller payments spread over a period of time are easier to manage.”
There are also other benefits to unit owners, including:
· No personal credit application or personal guarantee is required.
· The financial burden is lessened for those on a fixed or limited income.
· When owners wish to sell, their equity is maintained.
· Completing major improvements to a building can have a positive impact on owner equity by increasing the value of the units.
· The cost of major repairs will be passed through to future owners who also benefit from the work, an important consideration for owners in the process of or considering selling their unit.
It’s important to explore your options
Strata corporations are responsible for large and valuable real estate assets, and it’s important that the assets be properly maintained in a timely manner. Large-scale repairs and upgrades are simply part of this process. While expected costs can be planned for and possibly discovered ahead of time through depreciation reports, the impact that unexpected repairs can have on owners’ finances may be substantial.
Depending on your situation and the preferences of your group of owners, strata financing can provide flexible and affordable options that benefit everyone involved. Speaking with your legal advisors and a business advisor can help you explore this option.