Each year the condo’s Board of Directors is responsible to prepare a budget for the coming year. Normally the budget is prepared by select members of the Board (the Treasurer & the President, for example) and then presented to the entire Board of Directors for discussion and approval. It is a responsibility of the Board and does not require approval of the owners. However, many Boards will present the budget at a General Meeting of the owners. During this meeting, owners may ask questions or offer opinions, which could influence the Board’s final budget projections.
The importance of the condominium corporation’s budget is twofold:
- To assess the expenses of managing the day-to-day operations over the next year and
to make the required contribution to the Reserve Fund (as required by the NB Condominium Property Act and as recommended in your Reserve Fund Study).
- To determine what income is required to offset these expenses. Income is mostly from condominium fees, although rental of guest suites, revenue from estoppel certificates, interest revenue, and rental fees for storage lockers & parking spaces does contribute a small portion in some condominium corporations.
The process to complete the budget involves gathering expense details from your previous years’ financial records and information about probable increases in expenses. The first step is to list all actual expenses from the previous year, including the contributions made to your Reserve Fund. Next, review any new or renewing contracts, news articles suggesting pending increases in utilities, and additional expenses that may not have been incurred in the previous year. In a second column enter what the anticipated expense for the upcoming year will likely be. This is often a guesstimate. But using information you have gathered, you should be able to arrive at a reasonable estimate. Once the estimates are entered, review the increases. Do the increases seem reasonable based on last year’s actual figures and whatever information you have on probable increases to each item? Once this exercise is completed, add all of the expenses for a final total. Remember, your Reserve Fund is part of the budget, so you need to consider what contributions will be made to your Reserve Fund, too. Will you be contributing the same as last year or are you planing to increase your contributions? Increases in contributions often are a result of a Reserve Fund that has not been fully funded as recommended by the Reserve Fund Study or as a result of funds being used to pay for expenses identified in the Reserve Fund.
It is important to do a thorough assessment of the expenses and potential increases to be sure you have captured all of the costs. Remember, a condominium corporation’s objective is to meet the needs of all of its expenses. But any shortfall in the budget could result in revising the budget mid-year and increasing condominium fees to make up for the shortfall. This is not the best situation and may cause owners to lose confidence in the Board of Directors. It is best to estimate a bit over, to ensure revisions are not needed.
Now, calculate the condominium fees required to meet the needs of the budget. Remember, this covers all expenses, including contributions to the Reserve Fund and your Contingency Fund (if your condominium corporation has one). The Board will refer to the schedule in the condo’s Declaration known as “Common Interests and Common Expenses” to calculate the condo fees for each unit.
Next, review your condominium corporation’s governing documents (Declaration and By-Laws) and the New Brunswick Condominium Property Act. These documents will advise you of the obligations of the condominium corporation. The Act outlines what information and documents are required to be submitted to the Director of Condominiums and when. Your governing documents explain what your obligations to the condominium corporation’s owners are. The time lines for preparing the budget, distributing the budget and informing owners of the new condominium fees schedule are outlined in your own Declaration and By-Law.
Need more information? Contact Condo-Link Services for assistance in preparing your annual budget. We can review your current year-to-date expenses, provide information on proper forecasting of budget items, offer an opinion on probable increases in the industry that could affect your budget and assess what condominium fees are needed to ensure your budget can support the condominium corporation’s annual expenses, as well as contributions to your Reserve Fund.
Contact us at firstname.lastname@example.org or 506-206-2080.