September 9, 2023 - Blog Post
Understanding Condominium Corporation Budgets
We are headed into the fall and soon most, if not all of us (depending on your fiscal year), will be in the process of figuring out what condo fees to charge in order to meet the next year’s expenses. To do that we need a proper budget. An effective condominium corporation budget is essential for managing the financial health and operations of the community. It helps ensure that the corporation can meet its obligations, fund necessary maintenance and repairs, and plan for the future. Budgets will contain fixed and variable costs and discretionary and non-discretionary costs. As an example, oil can be a variable cost (it is constantly changing based on outside factors), but it is non-discretionary if you want to keep people from freezing. Knowing the differences can help people understand where amounts come from and what if any adjustments can or may need to be made throughout the year. Using budgets and actual costs from previous years can help formulate your upcoming budget as well as showing the ownership how you arrived at the amounts.
Here are the key components of an effective condominium association budget:
- Operating revenues: This category contains your condo fees and any other revenue generating operations such as a guest suite, extra parking fees, etc. The revenues should equal your expenses if you are trying to achieve a balanced budget.
- Operating Expenses: This category includes regular, ongoing expenses required to maintain and operate the condominium community. It encompasses items such as:
- Property management fees
- Utilities (water, electricity, gas, etc.)
- Landscaping and grounds maintenance
- Snow removal
- Cleaning and janitorial services
- Trash removal and recycling (where applicable)
- Insurance premiums (property, liability, etc.)
- Legal and accounting fees
- Administrative Costs: cover the costs associated with managing the association's operations. This includes items such as:
- Office supplies and equipment
- Association website maintenance
- Communication and marketing expenses
- Printing and postage costs
- Meeting expenses (venue rental, refreshments, etc.)
- Contract Services: This category includes services contracted for specific periods or projects. Examples include:
- Maintenance and repairs by external contractors
- Security services
- Pest control services
- Pool maintenance services
- Fitness center management
- Common Area Expenses: Common area expenses cover the costs of maintaining shared spaces within the community. This can include:
- Common area lighting
- Amenity maintenance (clubhouse, pool, tennis courts, etc.)
- Sidewalk and parking lot maintenance
- Playground upkeep
- Personnel Costs (if applicable): If the association employs staff members (e.g., superintendent, maintenance personnel), this category covers:
- Salaries or contracts
- Benefits (healthcare, retirement contributions, etc.)
- Training and development
- Reserve Fund Contributions: The reserve fund is crucial for funding major repairs, replacements, and capital improvements over time. It's essential to adequately fund the reserve to avoid special assessments or financial strain when unexpected repairs are needed. This category includes:
- Capital repairs and replacements (roof, HVAC systems, elevators, etc.)
- Renovations and upgrades to common areas
- Structural improvements
- Contingency Fund: Including a contingency fund allows for unexpected expenses that may arise during the fiscal year. It provides a safety net against unforeseen costs and helps prevent the need for budget adjustments or special assessments.
- Reserves Analysis: An effective budget should include a professional reserves analysis that outlines the anticipated long-term capital expenditures and ensures the reserve fund is adequately funded over time.
- Budget Allocation and Line Items: The budget should be divided into detailed line items, allocating funds to specific expenses for transparency and accountability.
Remember that the budget should be tailored to the specific needs of the condominium community and reflect input from the association's board of directors, property managers, financial advisors, and other relevant stakeholders. Regular review and adjustments are essential to ensure the budget remains accurate and effective.
CCI Nova Scotia's education plan for 2023-2024 will be published in the next few weeks. The first seminar in Oct will be on financial matters including budgets, where you’ll have an opportunity to further your understanding of this important topic. See you there.
CCI Nova Scotia
Tag(s): Board DynamicsBoard of Directors CCI Nova Scotia Communication Condo Act Condo Budget Components Condo Community Condo Corporation Budget Condo Education Financial Management Reserve Fund Planning Rule enforcement