An Overview of Condominium Amalgamation

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What is “Amalgamation”?  It is a consolidation, joining, union or marriage of two or more parties.  For condominiums, it means merging two or more similarly built and managed condominium corporations so that it becomes one brand new corporation with a newly registered number.  It means having one board and one set of monthly financial statements, one audit, one declaration and one reserve fund, just to name a few.

The usefulness of amalgamation cannot be understated.

Why a condominium community is developed with more than one condominium corporation differs from community to community.  In some cases, the condominium community was developed before amendments to the Condominium Act allowed for phased condominiums.  In other cases, phasing was not pursued for some other reason.  No matter the cause, developing a condominium community with more than one corporation requires the registration of multiple separate condominium corporations and plans, complex agreements supported by agreements, trusts and easements between them.  Often this required the imposition of at least two layers of organizational authority, including the condominium board (as required by statute), and a committee made up of representatives of each condominium tied to the community.  In addition, often due to the requirements of their agreements, every amendment to a declaration, by-law or rule requires every condominium corporation to undertake the same steps and register the same document multiple times.  For such condominium communities, the opportunity to amalgamate to reduce the administration to one board that covers the whole combined property, and to reduce or eliminate multiple registration requirements offers potential savings of time, energy and irritation.

First and probably the most important requirement is the willingness of the unit owners to move forward and to invest some funds to review the legalities and costs involved of amalgamation.  If there is no cost savings to each unit owner in the long term, then one cannot justify the time, energy and costs in considering amalgamation.

Some may think that savings would come from snow clearing or landscaping, water rates or maintenance costs.  In amalgamations, the amount you have to landscape or repair, for example, does not change, however, savings may be found through merging of contracts and other economies of scale.  Most savings, however, are found in duplications that exist, such as the preparation of the annual audit, monthly financial statements, bank charges, office expenses, annual general meetings, management fees, reserve fund studies and insurance policies.  By having one reserve fund and completing one reserve fund study, money from the entire community can be pooled to cover capital costs as they arise, instead of in an unamalgamated condominium community where the funds in one condominium’s reserve fund should not be used to make repairs within the boundaries of a different condominium corporation, even if the common elements being repaired are used by owners in both condominium corporations.

Just as important, there are some non-monetary efficiencies, such as removing the need for holding dual board meetings and preparing budgets and minutes.  The amalgamated condominium will only have to elect one board instead of finding enough volunteers to sit on multiple boards of directors.

Costs associated with amalgamation include lawyers’ costs for the preparation of legal documents, registration of title documents, attendances at board and owner meetings.  In addition, a new survey must be prepared for the new amalgamated condominium, which will form part of the declaration. An auditor may be consulted for any special reports, if required, and updated reserve fund studies may need to be prepared.  Condominium management will need to prepare status certificates and assist the boards with coordinating the push to amalgamation.

Amalgamation is not for everyone, but in many situations it is the best option for a condominium community to consider.  Because over 90% of unit owners in each amalgamating condominium must agree to the amalgamation, it is very important that unit owners be involved throughout the process.  The rewards for the amalgamating corporations can be significant, but any corporation seeking to undertake the amalgamation process must be prepared to undergo a complex and somewhat lengthy process requiring good communication and cooperation by all involved.

 

 

Topics:  Board of Directors, Condominium Corporation, Condominiums, Homeowners' Association, Mergers

Published In: Business Organization Updates, General Business Updates, Residential Real Estate Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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