How can I reduce the potential liability of buying a Condo

In my last post I was prompted to comment on the liability that can be present when buying multi-family-dwellings after reading two articles from the Vancouver Courier.

I will now try to give provide the reader tools for a thorough due diligence process to hopefully avoid a large portion of the potential liability that exists with these purchases.

My number one piece of advice is to have the unit inspected. This may seem like self serving advice, and in part it may be, but it is imperative that you have a Condo inspected before purchasing if you have any chance of avoiding liability. As this CMHC research report shows, many of the people that ran into financial difficulty after purchasing a Condo, did so because they did not have the Condo first inspected (in the studdy this represented 29 of the 40 case studies!).

The Vancouver Courier articles discussed how you cannot rely on the documents provided by the vendor and I cannot agree more. First of all, the commonly provided 2 years of minutes is not nearly a long enough time frame to properly evaluate the buildings performance. But it also is far too short of a period of time to properly evaluate the performance of the STRATA and PROPERTY MANAGER to ensure they are capable of properly managing the best interests of the building and owners. This is often a much larger area of liability for a potential buyer than that represented by the structure itself and a process that is often overlooked. A poorly managed and maintained building significantly escalates the costs of repairs and often the complexity and duration of those repairs.

Finally, another reason to not rely on minutes or property disclosure statements (PDS) is that they rarely reflect an accurate assessment of the property. A PDS is often not truthful and as I wrote about on another blog entry, there does not seem to be a reasonable way to hold the vendor responsible for what they fill out in the PDS. Likewise, Strata Minutes seldom tell the whole storey. Strata Council are of course owners and are often reluctant to divulge any information in minutes when they know that information could lower the values of the homes they own and make it difficult for them to sell in the future. They participate in the practice of “In Camera” meetings where no official minutes of what is discussed are kept or made available to the public and instead the discussions and resulting actions are “off the record”. This is of course illegal but regularly occurs in Strata’s across the lower mainland.

So, what can a buyer do to reduce their potential liability? I mentioned above that my number one recommendation is to have the unit inspected. Well my second piece of advice is to choose the ‘right’ inspector.

When the average time spent on site by a home inspector for an apartment style Condo is 1.5 hours or less, it is important to realize that this type of inspection will often not be thorough enough to have any meaningful impact on the potential liability you face as a purchaser. Further, the checklist style reports, usually provided by this style of inspector, are often unable to sufficiently inform the purchaser on any deficiencies or liabilities that this brief inspection uncovered.

Instead, a purchaser should look for an inspector that is going to take the time to perform a thorough inspection of not just the unit but also the building envelope/exterior, roof, parkade, and all common mechanical areas. Most important of all, look for an inspector who’s ‘process’ includes a detailed review of all engineering reports commissioned by the Strata in the last 5-10 years.

As home inspectors, we are generalists that if correctly trained are able to usually identify problems or the risk of problems. But we are only performing a visual inspection which has many limitations to defining the true condition of a building. A reputable building envelope firm will go beyond visual inspection and will disassemble components or perform some destructive testing to determine the full condition of the building enclosure. By including the review of these detailed engineering reports, an inspector can then provide a lot more insight to a potential purchaser to allow them to make a more informed decision.

In my next entry, I will discuss the type of report you should ensure your inspector provides and why that style of report is going to benefit you.