Details of contract are where you’ll earn or lose money
Tony Gioventu
Province
Dear Condo Smarts: Our family purchased five rental-pool townhomes in a resort complex in Parksville in 2002.
At the time, the promoter indicated our annual returns would be eight to 10 per cent of the value of our property. Obviously times have changed and the value has skyrocketed, but the returns have either stayed at a flat line or dropped with the reduced number of overnight bookings.
We’ve decided to sell three of our units and contacted the strata corporation to provide us with bylaws, financial records and copies of the rental-pool agreement.
Somehow, we were given the documents for other units with financial reports showing that the other units were receiving far greater return on their investments. The president, vice-president and treasurer of the strata council were part of this group and have received five times the financial returns that we ever saw. Can directors administer the rental pool for their interests without reporting it to the owners of the strata? We now have a lawyer involved but the business of the strata is intimately woven into the rental pool and it’s going to take years to sort out the mess. What’s our next step?
— CF
Dear CF: You are taking the correct action. Have the program audited, your contract reviewed and seek to recover your losses.
A rental pool in definition implies that all the expenses are applied to all the revenues of every unit in the pool.
Then the funds are distributed to the rental-pool investors based on the rental-pool agreements that are usually set by the size and number of bedrooms of a unit.
The other side of the rental pool is the management or operations agreement. While you may be in a pool that has a 50-to-70 per-cent occupancy rate, the management and booking commission rates may be so high and uncontrollable that you see little or no return.
Don’t forget to review the table of costs and disbursements.
What kind of bills could you be potentially facing?
The contract expenses may include almost anything: Booking fees, advertising, management, accounting, security, maintenance and operations in addition to strata fees, insurance, computer upgrades and entertainment can all be added to the costs.
Before you enter into a rental pool or buy a rental-pool property, talk to your lawyer and review the contract closely. The financial reports shown to potential buyers are best-case scenario and may not reflect the contract. The details of the agreement are where you will earn or lose your money.
Strata business and rental business should be entirely accounted for separately — unless it is the strata that owns and operates the rental-pool business. Even under those circumstances the strata business and the rental-pool business need to be accounted for separately.
Tony Gioventu is executive director of the Condominium Home Owners Association. E-mail: [email protected]