CONDOCENTRIC: Investing Corporation Monies

Section 115 of the Condominium Act, 1998 (the "Act") provides that any money received on behalf of, or for the benefit of, a condominium corporarion is to be held in trust together with interest and other proceeds earned from investing it. 

A condominium corporation will be faced with the need to invest money from time to time in the course of managing its fiscal resources, including reserve fund money¹.  Section 115 of the Act identifies where and in what vehicle a condominium corporation may invest its monies.  

Under subsection 115(6), the board may invest all or any part of the money in the corporation's general accounts in "eligible securities" subject  to two conditions.  First the "eligible security" must be convertible to cash within 90 days from request.  This ensures liquidity and safety.  Second, the "eligible security" must be held in the actual name of the condominium corporation or by a member of the Investment Dealers Association of Canada on behalf  of the condominium corporation in a segregated account [this means that the funds must be held in a seperate, non-pooled account clearly identified as belonging to the condominium corporation] and the funds must be insured by the Canadian Investors Protection Fund.  For reserve fund monies, the "eligible securities" need only meet the second criteria.  The need for liquidity will be dictated by the requirements set out in the reserve fund investment plan. 

An "eligible security" is a bond, debenture, guaranteed investment certificate, deposit receipt, deposit note, certificate of deposit, term deposit or other similar instrument that includes: a) those issued or guaranteed by the federal or provincial governments of Canada.  (It is important to note that municipal instruments are specifically excluded); b) those issued by a institution located in Ontario insured by the Canada Deposit Insurance Corporation ("CDIC"); or c) those prescribed by regulation.  There are currently no securities prescribed under the regulations of the Act. 

While requirement b) is a bit ambiguous in it's wording, two criteria must be met: 1) the financial institution must be located in Ontario; and 2) be a member of CDIC.  "Located in Ontario" means that the financial institution must have a head office or branch in Ontario.  Thus investment with a trust company that has offices everywher but not in Ontario, is a breach of the Act.  In today's world of online banking a further onus is placed upon a condominium corporation to ensure that the relevant financial institution, such as ING Bank of Canada, actually has a physical office in Ontario.  The Office of the Superintendent of Financial Institutions ("OSFI") [www.osfi-bsif.gc.ca] can assist in confirming those federal financial institutions permitted to do business across Canada including Ontario, as can the Federal Services Commission of Ontario [http://www.fsco.gov.on.ca/] with respect to those financial institutions permitted to operate in Ontario.  With respect to federal financial institutions while permitted to do business across Canada, the condominium corporation should ensure that such an entity actually has an office in Ontario. 

With respect to the second element, currently, membership in CDIC is limited to banks, trust companies and loan companies.  This is a critical distinction of which a condominium corporation must be aware for the following reason: 1) some financial institutions (while admittedly rare) may only be insured by a provincial insurance program, which is not the same thing as CDIC insurance and 2) there are fraudulent institutions out there which are not under the regulation of either a federal or provincial regulator and of course do not have any insurance.  CDIC provides up to $60,000 in deposit insurance for those instruments, which meet CDIC's criteria. 

At the end of the day, what this means is that a condominium corporation may only invest in eligible securities offered by: a) the federal or a provincial government; b) a bank, trust company or loan company, which are members of CDIC and which have a head office or branch in the province of Ontario or is a prescribed security.  As a further precaution, any condominium corporation that is investing in "eligible securities" with such a financial institution should also take the further step of confirming that the "eligible security" is eligible for deposit insurance by CDIC.  This can be done by inquiring with the branch or reviewing the financial institution's portfolio of products approved by CDIC as being eligible for insurance coverage,  For more information on CDIC, check out www.cdic.ca. 

¹  Where investment of reserve fund monies are contemplated, the same is to be done in accordance with an investment plan as prescribed under section 115(8) of the Act. 

All of the information contained in this article is of a general nature for informational purposes only, and is not intended to represent the definitive opinion of the firm of Elia Associates on any particular matter. Although every effort is made to ensure that the information contained in this newsletter is accurate and up-to-date, the reader should not act upon it without obtaining appropriate professional advice and assistance.

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