Phase 2 Condo-Hotels

The Basics of Phase 2 Ownership

Overview

There are 14 properties in Whistler with a phase 2 covenant on title. When buyers think of a phase 2, The Westin, The Four Seasons Hotel, and the Pan Pacific Mountainside and Village come to mind. On this page, I have covered these phase 2 properties simply because their information is superior. Therefore there is less room for misinterpretation. However, that does not mean that the remaining ten, phase 2 properties should ruled out. It may depend on your level of comfort with the management company.

Table of contents

Investment

Many investors are drawn to phase 2 properties for several reasons:

  • Unit cost is lower than a phase 1 or residential unit.
  • Phase 2 has the lowest cost/sq. ft.
  • The property is in a Rental Pool so no favoritism.
  • Full revenue statements are available to Buyers. Nothing missing.
  • An accountant with an office in the hotel is available to speak to owners.
  • Financial checks and balances by management company’s HQ.
  • Income earned from a phase 2 condo hotel is considered business income.

In my experience the reason most people do not invest in a Phase 2:

  • The Buyer has several options for investments.
  • The Buyer has little or no intention of enjoying the property themselves.
  • The numbers do not make sense to them against the return from bonds etc.

Read the Investment page to see the financial analysis on phase 2 property. This should help you determine if this product is for you.

Owner Management Agreement (OMA)

I would suggest that the OMA is one of the most informative documents to read. It will be part of the strata package of documents. Each phase 2 condo hotel OMA varies slightly, but so slightly that for this page the differences are not vital to know at this stage. The OMA gives you the rules as to how phase 2 properties manage the rentals.

Owner Definition

Registered Owner definition includes spouse, children, parents, and parents of the owner’s spouse. If there is more than one Registered Owner the same relationships for all registered owners.

Personal Allotted Allowance (PAA)

  1. 28 days of owner PAA in the summer period and 28 days of owner PAA in the winter period. 
  2. Summer period: April 16 to November 15. The ​owner’s PAA ​requirements must be submitted at the latest by November 15  for the summer period.​ This is 6 months notice.
  3. Winter period: November 16 to April 15. The ​o​wner’s PAA must be submitted at the latest by April 15 for the winter period. This is 6 months notice.
  4. Each of the permitted winter PAA and the permitted summer PAA will consist of not less than three weekly periods, consecutive or otherwise. The remaining seven days for which a Unit Owner is entitled to use the Strata Lot may consist of seven days​.
  5. If the owner reserves a Friday then the owner automatically has to reserve the Saturday night.

Close-in Reservations

  • 5 consecutive days reserved not more than 30 days in advance.
  • 15 days reserved not more than 15 days in advance.
  • If the owner reserves a Friday then the owner automatically has to reserve the Saturday night.
  • When the hotel is running at less than 80% occupancy, the owner can request to stay in their unit on short notice. This is at the discretion of the hotel. If the dates cover a US or Canadian statutory holiday, you may not be granted the stat holiday dates as these are peak occupancy dates.

​Changes and Cancellations to PAA

​Once the deadline for the upcoming season has begun then changes to the PAA means:

  1. The owner can cancel their ​P​AA within 30 days of the ​P​AA dates by written notice to management. There is a cancellation fee.
  2. If the owner does not show up to the ​P​AA dates, these dates still count toward their PAA.

Buying a Phase 2

There are many questions about how to handle the bookings already made by the seller that the Buyer will inherit. Although at this stage we are relying on the seller doing what is agreed to in the Contract of Purchase and Sale, the reality is that integrity is all we have to go on. The relationship is between the owner and management. Are you going to take the seller to small claims court because he didn’t reserve or cancel the booking identified in the contract? Probably not.

Transfer of Personal Bookings

  1. The ​Seller’s ​PAA calendar​ automatically ​transfers to the buyer.​ 
  2. The Rental Pool reservations automatically transfer to the buyer. 
  3. ​The OMA states that the seller must notify the buyer of their PAA calendar when the property is listed for sale. If the owner has PAA dates that are less than 30 days out, these dates cannot be canceled. 
  4. The Seller can cancel the PAA dates 31 days out. There may be a cancellation fee.
  5. ​Knowing the Seller’s PAA allows us to determine a closing date, especially if the buyer wants to use the property for themselves.

Writing the Offer

When you, the Buyer want to reserve personal time within 30 days of completion of the transaction, there are a few options:

  1. When the offer is written, ​the seller is required to confirm that upon receipt of the deposit, the seller will book the dates you, the Buyer want to reserve​, and 
  2. Request the seller cancel his PAA dates that are after the completion date, if the buyer does not want these dates.

In the offer to the seller:

  1. There can be a term in the contract that the seller cancels their PAA rather than transferring it to the buyer. The seller is permitted to cancel their PAA 30 days out and the seller assumes the cancellation fee.
  2. Therefore, the closing is 31-34 days out from the date the seller receives the buyer’s deposit and the transaction is firm and binding. The 31-34 days is based on whether there is a weekend or statutory holiday on those dates. These extra 4 days allows the Seller to cancel their dates.
  3. There can be a request In the contract for the owner to reserve the dates the buyer wants for their own PAA. This would happen once the deposit has been received from the buyer. This would only be necessary if the buyer wanted PAA dates close to the completion date, otherwise the buyer can wait and arrange this after completion. However, the further out the PAA for the Buyer is made, the better. Once the occupancy is 80% the buyer will not be able to reserve their PAA on short notice.

Closing Timeframe

  1. ​If the deadline for calendar submission for the winter season is April 15th. Closing before this deadline allows you to submit your winter PAA calendar.
  2. If the deadline for calendar submission for the summer season is November 15th. Closing before this deadline allows you to submit your summer PAA calendar.

Home Rescission Buyer Period (HRBP)

The HRBP is a 3 business day, cooling off period for the Buyer to determine whether they acted in haste when writing the offer. However, since phase 2 properties are deemed commercial, the owner can never live in the property. Granted, the Underused Housing Tax (UHT) division of the Canadian Government has a different opinion, which it seems is not going to change. Best read my blog post, What is the Home Buyer Rescission Period?

Insurance of Contents

With phase 2 the hotel purchases insurance of behalf of the owners. The only items not covered by insurance is the content’s of the owner’s lockers. However, if you are keeping anything of value in the in-suite locker, you may want to talk with your home insurance company regarding coverage.

Revenue

Calculation of Unit Revenue and Expense Share

The following was provided courtesy of the Westin:

“1) For each day that their Hotel Strata Lot is in the rental pool, the Hotel Investor will be entitled to share in the Room Revenue from the Hotel Premises and the operation of the Hotel earned on such day. The share of revenue for such Hotel Strata Lot is calculated by multiplying the Room Revenue earned on such day by the Interest Upon Destruction (IUD) for such Hotel Strata Lot divided by the total Interest Upon Destruction (IUD) of all of the Hotel Strata Lots in the Rental Pool on such day.

“2) For each day that a Hotel Strata Lot is occupied by an owner, the strata lot will not be in the Rental Pool, the owner of such Hotel Strata Lot will be entitled to share in the Gross Revenue less any Room Revenue from the Hotel Premises and the operation of the Hotel earned on such day, by multiplying the Gross Revenue less Room Revenue earned on such day by the Interest Upon Destruction (IUD) for such Hotel Strata Lot divided by the total Interest Upon Destruction (IUD) of all of the Hotel Strata Lots with occupancy permits.

“3) Each owner of a Hotel Strata Lot will be responsible for the payment of all Hotel Expenses, Capital Expenditures exceeding the FF&E Reserve, capital lease payments and the Hotel Manager’s fees payable for all days (whether or not the Hotel Strata Lot is in the Rental Pool). This payment is calculated by multiplying these applicable expenses by the Interest Upon Destruction (IUD) for such Hotel Strata Lot divided by the total Interest Upon Destruction (IUD) of all Hotel Strata Lots with occupancy permits.”

Fixed Expenses

The Owner’s Statement will show you what items are not included in the strata fees. In addition, the statement will show you what is deducted before the cash distribution. This is different for each phase 2 property.

The Westin deducts the items as fixed expenses from the gross operating profit. The benefit to the hotel is that they are in control of paying these expenses: property taxes, strata fees, and Tourism Whistler Fees. This is why when you look at the listing data for the Westin the listing agent has $0 as a strata fee, property taxes, and TW fees, hopefully with an explanation in the description.

Taxes and Fees

For Canadians, the Taxes and Fees page will provide you will all the information on what to expect when owning a rental property.

This is a huge topic, and it is covered on this website. For non-residents, the page on Taxes and fees will give you all sorts of information on what to expect when owning a rental property in Whistler. Non-residents: Taxes and Fees

GST-Exempt Video…coming soon

Is there GST on the purchase of a Phase 2?

Non-Residents: Withholding Tax

Income tax for non-residents is collected at the source of payment by the rental manager. The Canada Revenue Agency (CRA) has provided a blanket NR6 status as every owner is earning business income. This means that for phase 2 the Withholding Tax will be reduced to 25% of net income after expenses. Withholding Tax can be considered a pre-payment of tax. Best to read the page, Non-Residents: Taxes and Fees for heaps of information.

Non-Residents: Underused Housing Tax Video

I own a phase 2 investment condo do I pay UHT?

Yes! Phase 2 properties can be identified by the hotel name attached to the building, for example, the Westin. These are business income properties and for non-residents, the 28 days of use still applies to avoid the 1% UHT penalty.

The benefit of a phase 2 over a phase 1 is that you can use your phase 2 for up to 56 days and then rent out the rest of the year. Whereas the owner of a phase 1 property is up to 35 days of legal usage, and then must rent it out the rest of the year, if they are renting it out at all. Now that’s 3 weeks of legal use difference.

Strata Documents

The strata documents include the financials, the Depreciation Report, and the Home Owner Agreement.

Storage Skis, Boards, and Bikes

Ski Valet service seems to be the preferred method of storing skis. The hotel takes care of your skis and you pick them up and drop them off at the designated areas. Although the Four Seasons Hotel is not ski-in ski-out, the hotel operates a shuttle service, and they have a shop at the Base of Blackcomb that stores your equipment overnight. They also have a drop off-point and they collect your skis at the end of the day.

Parking

There will be a parking stall(s) allocated to your unit. These are unassigned stalls.

Financing

Financing is not impossible but you will need to have assets that can be used as collateral. For phase 2 it is recommended to retain a local mortgage broker who understands how to present your application.

Next Steps

Buying real estate in Whistler, whether ski-in/ski-out or not, is a smooth process when working with an experienced Whistler real estate agent who follows the rules. Everything in real estate, except for writing the contract and the negotiation is a process. Experienced realtor, and skilled negotiator, Marion Anderson will work with you directly from start to finish. No assistants are involved.

If you think I would be a good fit to work with you and your family, and you are not already working with a Whistler realtor, please, contact me.

It’s a Good Life in Whistler!

Marion Anderson Personal Real Estate Corporation

marion@WhistlerSkiinSkiout.com (604) 938-3885