Borrowing Funds for Strata Repairs

“Strata corporations can borrow funds,” says Tony Gioventu, Executive Director of the Condominium Home Owners Association of BC. If a strata Corporation wants to do major work like rainscreening, seal the entire under ground garage, replace all old windows,etc.

“There are several banking institutions in BC who lend to strata corporations for major construction and upgrades". Before a strata corporation plans to borrow for repairs they should start with a complete construction report on the scope of work and established an accurate cost estimate, so that the strata corporation can go shopping for a loan, looking for the best rate.

Repayment of the loan is typically done by one of two methods.

1) By special levies until the loan has been paid off.

2) As an expense from the operational budget, where the monthly maintenance fee would include the additional payments of the loans based on unit entitlement.

The strata corporation enters into a loan agreement, which is a contractual document that will grant the lender the first priority of receipt of special levies or strata fees. Because the strata cannot mortgage common property, this is the security required by most lenders to insure that they have the legal authority to collect on behalf of the strata corporation in the event that the strata corporation defaults on the loan.

Before any agreement has been reached between the Strata Corporation and the lender, approval is needed by the owners of the strata by a ¾ vote for the value of the loan, the terms and conditions of the loan, and the period of the loan must be stated and the resolution that the owners are voting on must encompass all the conditions and payment schedules of the loan. It is advisable that the Council seek legal help in drafting the resolution and be involved in the loan negotiations. This is for everyones protection.

The Strata has a duty of care to all owners, and in such, must make the economics of the loan very clear to all the owners. For example spell out in the voting document exactly how much the strata fees or special levies will be increasing and for how long.