Condominium Changes 2019: Condominium Act Regulations: Borrowing by Corporation

Anyone engaged in service on a condominium board has heard the news, change is coming. Just before Christmas, Service Alberta released 91 pages of new regulations that will impact your role as a board member, how your board operates and how our employees support you. The regulatory changes will usher in a sweeping set of new requirements that touch on everything from meeting agenda, to insurance, to notices, voting and much, much more.

Our team has already been working to analyze and plan for how these changes will impact your community. As that process continues, we will be providing you with a series of articles that focus on each of the major changes, so you can get up to speed. This article is the sixth of a series that will focus on the regulatory requirements that will come into effect on July 1, 2019.

Borrowing by Corporation

Borrowing by the condominium corporation is a subject addressed by the pending Condo Act regulations. The regulations impose requirements on boards when the amount of borrowing exceeds certain thresholds. The regulations require the board to undertake a resolution on borrowing that sets a maximum amount to be borrowed and allows a lender to be presented with a resolution as part of the loan process.

Resolution on Borrowing:

Under the regulations, a board must pass a resolution in order to borrow funds under certain conditions. Specifically, a corporation must pass a resolution in order to borrow funds when the sum of the loan, and all outstanding loans during a fiscal year, are more than 15% of the corporation’s revenue. The 15% is calculated from the most recent financial statement. A resolution is also required if the board wishes to borrow in an amount that exceeds a maximum borrowing amount the board has set by a previous resolution. The resolution may be either ordinary or a special resolution as required by the corporations governing documents.

When adopting a resolution, the board must specify the maximum amount the corporation is permitted to borrow in the fiscal year. This amount can be either a percentage of the corporation’s revenue or an actual amount in dollars. If needed, a corporation can pass more than one borrowing resolution in a given year.

Statement Permitting Borrowing:

In light of the pending borrowing resolution for corporations, the regulations contemplate that lenders may want a statement from a corporation when the corporate seeks to borrow funds. The regulations allow the board to issue a statement to a lender that attests to the corporation’s maximum borrowing amount and the remaining permitted borrowing amount

based on current indebtedness. If the corporation changes its borrowing limits prior to any loan being issued, it must update the statement to reflect any new limits.

Conclusion:

The new regulations on borrowing will add steps to the process for boards. It is important that as the effective date of the new requirements approaches, that your board is aware of the new requirements and what it may mean for your processes. As in any significant regulatory change, especially one that involves an owner’s ability to participate in the governance of the community, it is important to consult qualified counsel to address any substantive questions on the implications of the pending changes.