As mentioned in our previous blog, some condominiums may wish to consider borrowing in order to help with any cash-flow difficulties that may be encountered during the COVID-19 pandemic.
We know that some lenders are offering lines of credit to condominium corporations that are interested in temporary assistance with cash flow. So, what is required to approve a line of credit?
Section 56 (3) of the Condominium Act states as follows:
(3) A corporation shall not borrow money for expenditures not listed in the budget for the current fiscal year unless it has passed a by-law under clause (1) (e) specifically to authorize the borrowing.
This provision was interpreted in the case of York Condominium Corp. No. 42 v. Hashmi. In the Hashmi case, the Court said:
- Any borrowing requires authorization in the form of a borrowing by-law.
- Condominium corporations may borrow the amount necessary to fund expenditures included in the current year’s budget provided this has been authorized by a general borrowing by-law.
- A specific by-law is required if the purpose of the proposed loan is to fund expenditures not included in the current year’s budget.
So, in summary: If you have a general borrowing by-law (and many condominiums do!), the Board can arrange a line of credit to cover expenses listed in the current year’s budget.
Again, this may be a good option for many condominium corporations that are experiencing cash-flow issues due to the COVID-19 pandemic (or for other reasons).
One last note: Amendments to Section 56 (3) are pending (but not yet in force) which MAY change the above borrowing principles for condominium corporations. But for now, the law is as set out above.