Budget

Introduction A B C D E F G H I J K L M N O P Q R S T U V W X Y Z

Budget

Short Answer

An itemized list of the anticipated or intended expenditures of the condominium corporation (i.e., the common expenses) over a given period of time (usually one year).

Definition

The budget of the condominium corporation sets out in a formal, itemized manner, the anticipated expenses of the condominium corporation for the period in respect of which the budget is made.

Although there are no provisions in the Condominium Act, 1998, (the "Act") that expressly say so, the board of directors is required to establish a budget for the condominium corporation, usually (and at least) on an annual basis. The fact that there is to be a budget for each condominium, and particularly an annual budget, is indicated in various sections of the Act, such as the following:

56(3) - A corporation shall not borrow money for expenditures not listed in the budget for the current fiscal yearunless it has passed a by-law under clause (1) (e) specifically to authorize the borrowing.

76(1)(i) - The corporation shall give to each person who so requests a status certificate with respect to a unit in the corporation, in the prescribed form, that specifies the date on which it was made and that contains, ...(i) a copy of the budget of the corporation for the current fiscal year, the last annual audited financial statements and the auditor’s report on the statements;...

97(6)(a)(i) - For the purposes of subsection (4), an addition, alteration, improvement or change is substantial if, (a) its estimated cost, based on its total cost, regardless of whether part of the cost is incurred before or after the current fiscal year, exceeds the lesser of, (i) 10 per cent of the annual budgeted common expenses for the current fiscal year, and (ii) the prescribed amount, if any; or (b) the board elects to treat it as substantial.

It is therefore clear that the obligations of the condominium corportion cannot be fulfilled without having a budget prepared at least annually. It is the obligation of the board of directors to establish this budget.

What you need to know…

…as a Unit Owner

Contrary to some condominium unit owners' beliefs, under the Act the budget of the condominium is not required to be approved by the owners. It might be possible for a corporation to pass a by-law requiring unit owner approval, but this would unusual and probably unadvisable practice.

The budget is necessary for determining the amount that each owner must contribute to the common expenses for the period of time covered by the budget. The owner pays the proportion of such common expenses that is set out in the declaration of the corporation. See the Condopædia article, Assessment of Common Expenses, for a more detailed explanation as to how this is done.

…as a Board Member or Manager

Budgeting is all about planning. Condominium directors and managers (who are often responsible for preparing and managing the condominium budget on behalf of the directors, who in any event must approve the budget) should remember that in receiving and having control over unit owners' common expense contributions, they are in the position of trustees and cannot use such funds carelessly. Budgeting is an essential step in helping to ensure this does not happen.

Budget planning should begin well before the beginning of the year for which the budget it being made.

Despite similarities, each condominium is unique and may have unique budgetary needs. A board, in preparing or approving budgets, should not simply look to what other condominiums are doing, but consider the anticipated future and actual past costs of its own corporation.

In its November 2008 document, Account and Auditing Guidelines for Ontario Condominium Corporations, the Institute of Chartered Accounts of Ontario (ICAO), advises that there should be the following general components of any condominium budget:

General operating expenses. These include recurring costs for such things as utilities and contracted services (i.e., management fees, employment expenses, etc.), as well as regular repairs (not covered by the reserve fund) and maintenance of those parts of the property that are the condominium's responsibility.

Additions, alteration and improvements. This is an allocation of funds for anticipated changes to the common elements, assets or services of the corporation.

Reserve fund contributions. The amount of these will be determined by reference to the corporation's applicable reserve fund plan.

Other expenses.

The ICAO suggests that the 'Other' category might include a "contingency fund". It is generally not appropriate, however, to do this if the condominium already has a surplus or if there are not specific future expenses for which the savings are planned. A surplus for surplus' sake is not appropriate. As one commentator on the Condo Information Centre website suggests (link here to see the article), having a contingency fund or surplus when it is not specifically needed, is like holding unit owners' money "captive". This is a reasonable point of view, since the Act explicitly states that surpluses cannot be returned to the unit owners but must be saved to apply to future common expenses or deposited as additional contributions to the reserve fund.

Having said this, instead of a line item for a surplus or contingency fund, a sufficient cushion can be built into each regular line item to help prepare for unforeseen costs.

…as a Declarant

The primary concern for the declarant in regard to budgeting for a condominium corporation is in regard to the First Year Budget, which is the subject of a separate Condopædia article referenced above. In respect of any other period of time, the declarant, if it still owns units, is only in the same position as all other unit owners (subject to the provisions of the declaration).