Brant Park

Budget prep for condo managers

Tips for fulfilling annual financial planning requirements on time
Wednesday, February 11, 2015
By Scott Newhouse

Each year, every condominium corporation requires a budget to be prepared, approved and circulated to unit owners. This is both for information and transparency purposes, but also to notify owners of any increase (or decrease) in common element fees necessary for the next fiscal year. Budgets are truly the basis for every condominium’s operations, from a financial perspective. In this respect, timing is everything when it comes to budget prep.

Should a budget not be properly constructed and approved by the board prior to the fiscal year-end, a corporation will not only be in contravention of the Condominium Act, which requires annual budgets, but the corporation will not have a proper financial plan to follow, thus risking consequences such as over-spending. Plus, owners will not have a sense of how their common element fees are calculated.

For good practice, budgets should refer to the eighth or ninth month financial statements of the existing fiscal year (and include data from those statements). Budgets should be ready to present to the board of directors by the tenth month and, indeed, is typically a requirement of most management contracts. The budget should be accompanied by budget notes outlining to what each account line refers — such as hydro, landscaping and reserve fund contributions — and the budget cover letter to owners.

Many managers will call a special board meeting to present a budget. A board will likely have feedback or questions that the manager will need to address. A recommendation: Have the board review the budget notes and the cover letter to ensure it is in line with their expectations. For example, the board may wish to have a specific note added to the letter. The budget cover letter should include the unit owners’ names, the new common element fee, commentary on how the budget is unique this year, management contact information and information on how to pay the common element fees.

Once the board approves the budget, accompanying notes and letter, the manager will need to have his or her accounting team prepare the proportionate share per unit as per schedule D of the declaration. Cover letters should be customized to have the new common element fees included in the body of the cover letter.

Once the customized unit letter is prepared, a copy needs to be mailed to units owners, together with the budget and notes. Some management firms also include a copy of the pre-authorized payment (PAP) form, instructions on how to pay, and form 5s (owner information form). This should be in the mail no later than the fifth day of the eleventh month to allow owners time to receive, digest and make necessary arrangements to pay the new amount.

Following this timeline will help managers and corporations ensure they deliver their annual budgets on time. Failing to deliver annual budgets on time breaches the Condominium Act and comes with a variety of risks, including arbitrary fees and over-spending. It’s important to refer to recent financial statements and leave time for discussion with the board to get the budget right. After all, budgets provide the foundation for a condominium’s operations.

Scott Newhouse, BA, RCM, is president and CEO of Harmony Management, a boutique management firm with a speciality in condominium property management.