Managing a property entails distinct responsibilities depending on its ownership. While an individual owner enjoys complete autonomy regarding the maintenance of their property, co-ownership imposes a governance framework that oversees the preservation of collective assets. This distinction is central to management and asset management issues. An owner who enjoys exclusive rights over a single-family property, for example, exercises absolute control: they can preserve the quality of their property or, conversely, neglect it and suffer the consequences.
This freedom is, however, governed by clear limits: they must not compromise the safety of others or violate municipal by-laws. But what about the rights of co-owners in a building held in co-ownership?
The central role of the Syndicate of co-owners
In a co-ownership, the maintenance and preservation of the building’s quality—particularly with respect to the common portions and their impact on the private portions—fall entirely under the responsibility of the syndicate of co-owners, in accordance with article 1039 of the Civil Code of Quebec. This provision imposes on the syndicate the duty to ensure the conservation of the building, the maintenance, and the administration of the common portions.
The directors, for their part, act as mandataries of the syndicate. Under article 322 of the Civil Code of Québec, they must perform their duties with prudence, diligence, honesty, and loyalty, in the best interest of the syndicate and all co-owners.
It follows that the rights of co-owners are framed by the authority of the syndicate, particularly with respect to the maintenance, repair, and management of common portions for restricted use (such as doors, windows, or balconies). Furthermore, co-owners are also subject to obligations related to the preventive upkeep and restoration of the private elements under their responsibility, especially when such elements may affect the patrimonial value of their unit.
Hence the importance of rigorous and structured governance within the co-ownership!
Managerial risk and heritage risk
The risks associated with the management and administration of a co-ownership are both "managerial" and "heritage" in nature. Managerial risk arises from short-term decisions made by managers regarding the operation of the building. This risk can manifest itself in various forms, including a lack of preventive maintenance or a maintenance deficit. It should be noted here that strategic planning, which includes the study of the contingency fund and the development of the maintenance logbook, is the responsibility of the directors, while managers, when in office, ensure its execution. The actions resulting from the maintenance logbook directly influence the value of each co-ownership unit and, by extension, the co-owners' assets. This logically brings us back to the concept of asset risk, a long-term issue that threatens the economic, cultural, historical, or aesthetic value of a property or site.
Preventing financial risk through the maintenance logbook and the contingency fund
Managing a co-ownership requires rigorous organization and long-term planning to ensure the long-term quality of the building and the preservation of the value of the collective assets. Among the essential tools for achieving these objectives are the maintenance logbook and the contingency fund. An adequate contingency fund guarantees the availability of the necessary financial resources to carry out the work when it is required. These two tools provide insight into the building's condition and track finances to cover anticipated expenses, including major renovations and major renovations. By building financial reserves, the co-ownership association can plan long-term projects and avoid unexpected calls for funds, which are often viewed negatively by co-owners and potential buyers.
For example, imagine a co-ownership building with 12 units, where each co-owner holds an equal share. The co-ownership association faces urgent work totaling $1,200,000, as well as a shortfall of $200,000 for medium-term work. Each co-owner will have to contribute as follows:
Thus, the total contribution per unit is $116,666.66 to finance urgent work and replenish the contingency fund deficit.
Now, what would happen if four co-owners lacked the necessary funds to finance urgent work and replenish the contingency fund? This delicate financial situation for the co-ownership association would result in a redistribution of costs. Thus, the co-owners of the eight solvent units would each have to pay an additional contribution of $58,333.33, or:
The total contribution for each of the eight co-owners would therefore amount to a rounded amount of $175,000, or:
This highlights the importance of financial risk, fully justifying the need for a statement of the financial and physical quality of the co-ownership. A potential buyer must be informed of this reality before submitting their offer to purchase. They may therefore require a certificate from the syndicate when selling a fraction of a co-ownership so that it can be analyzed by a financial expert such as a chartered appraiser or a chartered professional accountant.
Furthermore, a check in the Land Register of the land titles of the co-ownership units representing the entire syndicate could reveal notices of default associated with certain units. Indeed, the notices registered in the Land Register of Quebec are official documents that serve to publicize certain rights, events, or legal situations affecting a building, including defaults such as notices of mortgage exercise, notices of tax sale, or legal hypothecs. They inform anyone conducting a land search of the existence of these rights or events.
Yvon Rudolphe, Ph.D. STS, MBA fin., É.A., CMC, F.Adm.A.
Consultant and wealth director
Rudolf Groupe Conseil
Tel. : 514 362-8008
Email : [email protected]
