COVID-19 Update: New Financial Option for Condominiums

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On March 21, 2020, we published a post entitled COVID-19 Update: Virtual Meetings, Condo Fees, and Liens. We suggested some ways in which condominiums could lessen the burden on owners who may be struggling to pay their condo fees, such as revising the budget or changing the payment schedule. We also eluded to a third option coming soon. This morning we learned more about that third option.

CWB Maxium Financial is offering a short-term loan to provide condominiums with operating cash during this period where more owners are unable to pay their monthly condo fees, resulting in higher than usual receivables. The interest rate is reasonable, especially given it is not secured by real property. Unlike other sorts of condominium loans, this short-term loan includes much more flexibility and provides the condominium with options for paying it back. For more information, contact Ryan Griffiths at CWB.

Condominium corporations pursuing this option will have to decide how to proceed with the authorization required for borrowing. With the current restrictions on gatherings the traditional method of holding an in-person meeting just isn’t possible.

In Ontario, borrowing by condominiums is authorized by Section 56(3) of the Condominium Act, 1998. Section 56(3) states:

Borrowing by-law

(3) A corporation shall not borrow money for expenditures not listed in the budget for the current fiscal year unless it has passed a by-law under clause (1) (e) specifically to authorize the borrowing. 1998, c. 19, s. 56 (3).

Section 56(3) clearly permits borrowing where a specific by-law authorizing it is approved by the owners. However, there is some debate about whether a condominium could borrow without a by-law so long as the expenditures are listed in the budget.

The first group have interpreted Section 56(3) as allowing borrowing without a new by-law specifically authorizing it so long as the expenditures are noted in the budget. This means that a condominium could revise its budget to include the short-term loan, give notice to the owners, and take out the loan without a new by-law being approved by the owners. The condominium must ensure notice of the revised budget is provided to the owners as required by the by-laws and wait the period of time described, normally 30 days, before taking out the loan. Providing notice to the owners gives them time to object, which is normally in the form of a requisition for a meeting to discuss the revised budget.

The other group believes that a specific by-law authorizing the borrowing is required in every instance. Some in this group believe that the owners should be involved any time a loan is taken out by the condominium and to revise the budget to avoid the by-law requirement is an attempt to circumvent the Act.

I am in the first group. I believe it is possible to take out short-term loans and comply with the Act without passing a by-law each time so long as the condominium complies with the Act and its governing documents. The crucial point is that proper notice must be provided to the owners prior to entering into the loan. While I believe this option may provide much needed relief to some condominiums, there is some controversy about it as described above so condominiums would be wise to seek out legal advice from their lawyers before pursuing it.

Stay tuned. I have a feeling there may be further news to share in the coming days or weeks as we continue to work together to get through this pandemic. Stay safe!