Maintenance fees: Why do they keep rising?

One of the most common questions condo boards are asked is: “Why do maintenance fees keep going up?”

The simple answer is: Condominium corporations are legally registered not-for-profit entities that cannot offset increasing operating costs by “making money” from any sources other than through maintenance fees. So as long as the costs of goods and services needed to operate a building go up, so too must maintenance fees.

Therefore, the best strategy for condo boards is to focus on actively managing costs on a regular monthly basis (not just at budget time) and to involve all residents and owners as part of the ongoing solutions.

Considerations and constraints

There are five major categories of expenses associated with operating a condominium corporation: Building utilities; building operations; reserve fund contributions; staff and operating contracts; and general administrative and insurance costs. However, not all costs can be entirely controlled because some are essentially non-discretionary and some are discretionary.

• Non-discretionary costs are those which the condominium corporation has little or no ability to control due to limited competition in providers (insurance, electricity, water) or due to regulations or code compliance (mandatory reserve fund contributions, monthly fire alarm testing, elevator load testing). For most buildings, non-discretionary costs represent the majority of operating expenses.
• Discretionary costs are those which the condominium corporation has more control or complete control over by deciding which services to offer (24-hour security, building operator), which service providers to use (cleaners, landscapers), managing consumption (common area utilities) or changing the scope or work (reduce security hours).

Condominium corporations are also legally obligated to maintain all common elements amenities and services originally defined in the Declaration, so fundamental changes to (or elimination of) these amenities or services cannot be made unilaterally by a board and must be formally approved by nearly all owners (typically more than 90 per cent).

In addition, overall building operating costs inevitably increase once developer and manufacturer warranties expire, particularly after year two, as the condominium corporation starts assuming and must start budgeting for costs that were once assumed by others.

A condominium building’s age also has a disproportionate impact on budgeting for utility costs within the first five years, in particular, due to the lack of history on consumption over time and various weather conditions.

Nature and activities of building residents can also impact maintenance fees in unpredictable ways, particularly if legal actions are required by the condominium corporation for compliance or enforcement.