How to avoid a commercial condo disaster
4 minutes read
Rising real estate and construction costs have many entrepreneurs considering a commercial condominium as an alternative to a stand-alone building for their business. But watch out: The onus is on you to make sure a condo is right for your company.
"It often makes sense for businesses to share land and parking," says Gord Dosanjh, Assistant Vice President, Business Development at BDC. "Stand-alone buildings are expensive and hard to find in many areas, especially in commercial business parks. And many developers prefer to build condos to achieve higher returns."
Sharing a building with other companies offers numerous advantages beyond a lower purchase price. Condo owners benefit from sharing the cost of such items as maintenance, insurance, property taxes and heating. And the building is often run by a management company, saving entrepreneurs the headaches of operating a building as well as their own business.
But experts caution that entrepreneurs need to do their due diligence, with the help of qualified advisers, before purchasing a commercial condo. Condominiums are governed by provincial laws that vary across the country. However, they do contain many common provisions designed to protect consumers.
Here are some things to keep in mind when considering the purchase of a commercial condo.
1. Read disclosure documents
Condominium corporations must provide you with disclosure documents covering such matters as the condo’s bylaws, rules and financial statements. For resale condos, disclosures will include such things as outstanding litigation and whether the owners are up to date on payments into a reserve fund for future repairs.
In most provinces, condos need to have a periodically updated opinion from an expert—typically an engineer—on the adequacy of the reserve fund based on the age and condition of the roof and other common elements, says Ron Danks, a lawyer in Hamilton, Ontario.
"It’s important to make sure your offer to the vendor is conditional upon getting those disclosure documents and having time to go over them with a lawyer or a notary who is familiar with condo transactions—typically 5 to 10 days," says Danks, a condo specialist and partner at the firm SimpsonWigle Law LLP.
2. Ensure you can operate your business in the condo
Some types of business may be excluded from operating in the condo you’re considering because of zoning or condo restrictions. For example, Danks knows of one condo that prohibited welding and open flames rather than incurring the expense of installing interior walls meeting fire code for that kind of activity. Danks also notes you will likely need the permission of the condo board before making changes to common elements and even sign a contract outlining your responsibility for those changes.
3. Know your neighbours
It’s important to not only inspect the unit you’re thinking of buying, but to also look at your neighbours’ businesses and the outside of the building. Is there something that could potentially impede your operations or discomfort employees and customers? Examples might be noise, fumes or odours from neighbours or trouble spots on the property like garbage or abandoned equipment.
4. Pay particular attention to parking and access
Inadequate parking for employees, customers and other visitors is a key source of aggravation for condo owners, says BDC’s Dosanjh, who has financed numerous commercial condo purchases. "Find out what the situation is with the parking," he says. "Is it designated and adequate for your needs?" At the same time, ensure you will have access for trucks taking shipments or making deliveries. Another issue is signage. Where and what can you put up to advertise your business? Finally, Dosanjh says entrepreneurs should make sure the condo has an adequate supply of electricity if their business is a heavy consumer.
5. Watch out for contamination
BDC requires buyers to have an environmental assessment of a property before financing a purchase. Obtaining an environmental assessment is a good policy for all commercial property buyers, Dosanjh says. The activities of previous owners may have contaminated your unit or your operations may be incompatible with the condo’s location. For older units, you may also want to invest in a building inspection to know the state of the property you’re buying and any looming repair costs.
6. Know your limits
The roof, exterior cladding and parking lot are usually owned and maintained by all owners. But how about the windows and doors on your unit—are they yours? You should be aware of what your unit encompasses and what is commonly owned, says Danks, who recommends the Canadian Condominium Institute to those who want to learn more about condo ownership.