In a previous blog post, we discussed how a property’s condominium status can be terminated. We expect “de-condominiumizing” or terminating/dissolving condominium corporations to become a more common and attractive option for owners as buildings age and maintenance/repair costs increase. Real estate investors might also consider de-condominiumizing investment properties and conversion to rental apartment buildings. However, de-condominiumizing can have unintended tax consequences and owners should seek legal advice so they can fully appreciate all the pros and cons of this option.

Take, for example, the situation in which the owners of College Plaza recently found themselves, in the following decision: Governors of the University of Alberta v Edmonton (City), 2022 ABCA 290.

College Plaza is a single title, mixed-use, commercial and residential apartment complex located near the University of Alberta campus and owned by the University. As the owner of the building, the University challenged the City of Edmonton’s property tax assessment arguing that rental apartment buildings should benefit from the same tax advantages as rental condominium buildings.

Property taxes are levied according to the property’s assessed values. The Municipal Governance Act (MGA) sets out how properties are assessed for tax purposes. Different assessment rules apply to condominiums and apartments. Drawing on all applicable laws and regulations, the City of Edmonton determines their “Assessment Methodology” which sets out the factors that are considered and the various models that are applied when determining a property’s assessed value.

The City of Edmonton’s 2019 Assessment Methodology assigned a 20% downward adjustment to the assessed values of rental condominiums (the “Rental Ownership Factor”). This applied to multi-title condominium buildings, where all units were owned by the same owner and all units are rentals. The owner of College Plaza questioned the distinction between rental apartment buildings and rental condominium buildings arguing that both types of properties are essentially the same, and thus, should be taxed similarly. The Alberta Court of Appeal disagreed, identifying important differences between rental condos and rental apartments, and found it was reasonable that these properties would be taxed differently.

The Court of Appeal found that the 20% downward adjustment acknowledged two unique characteristics of rental condominiums:

• Rental condominium buildings are subject to increased wear and tear, which results in the common property needing more frequent maintenance and upgrades, and an overall decrease in the value of the property as compared with owner-occupied condominium properties.
• Sole owners of rental condominium buildings act as a non-arms’ length board and are subject to different statutory obligations under the Condominium Property Act that adversely affect the marketability and the value of a rental property (for example, there is no requirement for a reserve fund to be maintained where al the units are held by a single owner).

The key take away for condominium owners and investors considering purchasing a condominium building as a whole, or all units in a condominium building where rental is the intended use, is that, depending on the municipality, important property tax benefits may be lost by de-condominiumizing or converting the property to a single lot, block and plan. Anyone contemplating de-condominiumizing should seek legal and tax advice.

For more information on de-condominiumizing or condominium law in general, contact us.