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October 8, 2009 - By Richard A. Elia

CONDOCENTRIC: Discretionary Borrowing

The discretionary borrowing authority, found in many existing borrowing by-laws passed under the Condominium Act, R.S.O. 1990 (the “old Act”), is necessary to allow a condominium corporation to meet its short-term financial obligations without resorting to the premature liquidation of its investments. While investments are generally scheduled to mature to coincidentally with planned expenditures, it is impossible to forecast accurately, thereby often creating the need to permit short-term, discretionary borrowing.

Under the old Act, by-laws authorizing the borrowing of money generally consisted of two components: (1) the requirement that any borrowing over a given amount is subject to a majority vote of the unit owners at a meeting; and (2) the condominium corporation has the authority to borrow up to a maximum discretionary amount, often equivalent to two months’ common expenses for the Corporation.

The Condominium Act, 1998 (the “new Act”), specifically restricts the condominium corporation’s authority to borrow to circumstances where (1) the expenditure for which the borrowing is needed has been listed in the budget for the current fiscal year of the Corporation; and (2) a separate by-law has been passed to specifically authorize the borrowing.

It is still necessary (and beneficial) for condominium corporations to pass general borrowing by-laws; however, while the new Act streamlines the borrowing process for planned borrowing, by using the annual budget as notice, and thereby not requiring an approval vote by unit owners, discretionary borrowing is not so straightforward.

There remains some uncertainty as to what is meant by the phrase “...shall not borrow money for expenditures not listed in the budget...”. For example, will short-term borrowing be permitted in circumstances where the actual amount of an expenditure is in excess of the forecast amount noted in the budget (remember the natural gas cost increases in 2000- 2001), or where an unanticipated cost arises, which cannot be absorbed within the current budget.

In addition to passing a general borrowing by-law, a condominium corporation may wish to consider including a notice in the annual budget advising unit owners that the expenditures listed represent the Corporation’s best estimates of what will be spent in the coming year but that the Corporation has no control over price fluctuations or unexpected costs which may arise. If necessary, and in order to avoid the premature liquidation of the condominium corporation investments (which would result in the probable loss of all or most of the interest earned in relation to the investment) the condominium corporation may exercise its discretion to borrow such monies as may be necessary on a short term basis, up to a maximum of two months’ common expenses.

Of equal importance to having discretionary borrowing authority, is that the budget is well thought out, detailed and comprehensive.

From “Common Elements” Winter 2002


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