Condo vs. Co-op: What Ontario Buyers Need to Know

Condos and co-ops can look very similar from the outside, but the way you own, finance and eventually sell them can be very different. Understanding those differences is important before deciding which type of property is right for you.

The Biggest Difference: What Do You Actually Own?

When you purchase a condominium, you own your individual unit together with an undivided interest in the condominium's common elements. These may include hallways, elevators, lobbies, recreational facilities, parking areas and other shared portions of the property.

With a co-op, the structure is different. Generally, a corporation owns the building and residents acquire shares or membership rights that give them the right to occupy a particular unit. You do not receive title to an individual condominium unit.

This difference affects financing, monthly expenses, resale and how much control the corporation or co-op board may have over the property.

Financing

Condos are generally easier to finance because lenders can register a mortgage directly against the condominium unit.

Financing a co-op can be more specialized because the purchaser may be acquiring shares in a corporation rather than title to a specific unit. Not every lender finances co-op purchases, and available financing terms, down-payment requirements and interest rates can differ.

Before making an offer on a co-op, it is especially important to confirm your financing options with a lender or mortgage professional familiar with this type of ownership.

Monthly Costs

Condo owners pay monthly condominium fees. These fees typically contribute toward maintenance and repair of the common elements, building insurance, management expenses, amenities and the corporation's reserve fund. What is included varies from building to building.

Co-op monthly charges can be structured differently and may cover a wider range of expenses associated with operating the entire property.

Rather than comparing the monthly fees alone, buyers should look closely at what is included, the financial health of the building and any anticipated major expenses.

Rules and Restrictions

Both condos and co-ops have rules governing how residents can use their homes and shared areas.

Ontario condominium owners are subject to the Condominium Act as well as their corporation's declaration, by-laws and rules. These documents can address matters such as pets, renovations, parking, smoking, noise and short-term rentals.

Co-ops can also have detailed by-laws, occupancy agreements and policies. Depending on the particular co-op, there may be additional restrictions involving purchasers, financing, renovations or rentals.

Always review the applicable documents carefully before committing to a purchase.

Buying and Selling

Selling a condominium is generally similar to selling other forms of real estate. The buyer acquires title to the unit and the associated interest in the common elements.

A co-op transaction can involve additional requirements because ownership is based on shares or membership rights. Depending on the building, the purchaser may need to satisfy specific financial or membership requirements before the transaction can be completed.

These requirements can affect both the buying process and future resale.

Renting Your Unit

Condominium units can generally be rented, although the condominium's declaration and rules may impose restrictions, particularly on short-term rentals.

Co-ops may have more restrictive rental policies. Some limit or prohibit subletting or require board approval.

If you are purchasing with the possibility of renting the property in the future, review these restrictions before buying.

Taxes

Canadian tax treatment should not be assumed to be the same as in the United States.

For a home used as your personal residence, mortgage interest is generally not deductible simply because you own the property. Different tax rules can apply when all or part of a property is used to earn rental or business income.

A qualifying condominium, leasehold interest or share in a co-operative housing corporation may also qualify as a principal residence for Canadian tax purposes, subject to CRA requirements.

For questions involving your particular situation, speak with a qualified accountant or tax professional.

What Should You Review Before Buying?

Whether you are considering a condo or a co-op, look beyond the individual suite.

For a condominium, important items can include:

• Monthly condominium fees and what they cover
• Reserve fund information
• The status certificate
• The corporation's declaration, by-laws and rules
• Current or potential special assessments
• Litigation involving the corporation
• Insurance coverage
• Restrictions affecting rentals, pets or renovations

For a co-op, buyers should also carefully review:

• The exact ownership structure
• Corporate financial statements
• By-laws and occupancy agreements
• Financing requirements
• Approval or transfer procedures
• Monthly charges and what they include
• Rental or subletting restrictions
• Any underlying debt or financial obligations of the corporation

A lawyer familiar with the particular ownership structure should review the documents before your purchase becomes firm.

Which One Is Right for You?

A condo may be a better fit if you want conventional real-estate ownership, greater access to mortgage financing and generally easier resale.

A co-op may be worth considering when the property, location and purchase price are attractive and you are comfortable with its ownership structure, financing requirements and rules.

Neither is automatically better. The important thing is knowing exactly what you are buying, what it will cost to own and what restrictions will apply both now and when you eventually sell.

Thinking about buying a condo or co-op in Toronto, Vaughan or the GTA? I can help you evaluate the property, review the important considerations and make sure you know what questions to ask before submitting an offer.