What is the Financial Structure of a Condominium
The Financial structure of a Condominium relates to the Annual Budget and the day-to-day expenditures which generally comprises of services related contracts and utilities. Every year just prior to the year-end; the Board of Directors get together with their financial consultant, generally the person doing their accounting to determine the expected revenues and expenditures over the next 12 month period. The revenues are generated from maintenance fees from the unit owners.
Once prepared; the Board of Directors approves the budget and sends it to the Owners of the Corporation approx 2 weeks prior to year end with a notice to each respective Unit Owners informing them of their new maintenance fee amount for the incoming fiscal year.
The Financial statements shall include:
- a balance sheet
- a statement of general operations
- a statement of changes in financial potion
- a statement of reserve fund operations
- prescribed information relating to reserve fund study and operations
- an indication of the aggregate remuneration paid to the Directors
- Additional statements or information
Most budgets are relative to the cost of inflation. If your building is above 4-5% Ask Questions
Note: New Construction Buildings
- 1 – 2 years old may have a large increase in maintenance fees in the 2nd Year
- See New Construction – Maintenance Fees and Financials
Standard Operating Budget Expenditures include:
- Property Management Firm
- Cleaners and General Housekeeping
- Concierge / Security (and/or Gatehouse)
- Heat, (Gas) Hydro and Water
- Maintenance and Repairs
- Energy Management
- Landscaping /Show Removal/Lawn Mowing
- Exterior Maintenance
- Repairs and interior maintenance
Surplus and Contingency Funds
There could be instances where the Annual Budget was over-calculated leaving a surplus in the Condominium Budget. Many times the Board of Directors may not spend the surplus or contingency fund and keep it for an unexpected charge. Other times they may use portions of this amounts to pay down the inflationary increase at the following years annual budget review. In either case; if the surplus and/or contingency fund is no too great; we do not see there to be a harm in keeping the additional moneys available.
The budget will also include a portion to be paid towards the Corporation Reserve Fund. It is very important for a Board of Directors to be very careful and practice complete transparency and due diligence with expenditures relating to reserve funds. There are strict mandates in accordance with the Condo Act which must be adhered to. If a condo building has a low reserve fund; it could trigger special assessments and expensive costs moving forward.
Special Assessments are when the building does not have an adequate reserve fund to do a repair and cannot charge the expenditure through the operating budget. In order to obtain the monies required; the Board will approve a Special Assessment and each unit owner will be assessed their portion of the expenditure in relation to their square footage of their unit. During the times of a Special Assessment, Unit Owners will be subject to pay their monthly maintenance fees and also their Special Assessment. This added costs could make life very miserable for many.
Approval of Budget
The Budget is approved by the Board of Directors evidenced by the signature at the bottom of the balance sheet by two of the Directors with signing authority.
Auditor and Review of Financial Annual Report at Annual General Meeting
Every year the Corporation Auditor shall examine the financials and prepare an annual report to be verbally provided by the Auditor at the Annual General Meeting. Expenditures from the Reserve Fund must be made in accordance with the Reserve Fund Study which must be carried out by a professional reserve fund study engineering firm on behalf of the Corporation every 3 years.
Note: The Auditor is appointed by the Corporation (vote by Owners) and not hired by the Board of Directors