In a condominium, financial planning and governance are done by an elected board of directors. These board members are elected (or re-elected) at an annual general meeting, commonly for three-year terms. They are essentially trustees responsible for ensuring that the financial planning and budgeting is done in a fiscally responsible, legal and transparent way.
A condominium’s budget is a list of the expected expenditures of the condominium corporation, including maintenance (such as ensuring the smooth operating of heating and air conditioning), planned repairs or improvements (such as replacing windows or painting), the salaries of condominium employees (such as the concierge), maintaining an emergency or reserve fund for unexpected expenses (such as repairs following flooding), as well other general operating expenses. The budget is set annually and is funded by the common expense contributions (maintenance fees) of the unit owners.
The condominium’s budget is the exclusive responsibility of the board of directors. Individual unit owners don’t participate in making the budget, although they do elect the board of directors itself. The directors establish the budget well in advance of the upcoming fiscal year. The board also sets the common expense contributions unit owners must pay to fund the budget’s expenses.
The board has the exclusive right to make changes to the budget, except in several specific circumstances, such as improvements or additions to the property that exceed 10% of the condominium’s annual operating budget. In that case, unit owners may request a vote to approve or deny the changes or even replace the board. However, any additional costs incurred in maintaining or repairing the condominium property remain the exclusive responsibility of the board, regardless of the cost.
The condominium’s board of directors typically meet every month and will review that month’s financial statement provided by an accountant or the management company operating the condominium. They may decide to modify the budget if certain maintenance or repair issues arise. This will typically mean using reserve or emergency funds (or a budget surplus) to cover the additional expenses, or it may mean that fees are increased. If the change is sufficiently sufficient, a special assessment may have to be levied to owners. Changes to the budget must be voted on by the entire board.
A financial statement is a listing of the income and expenses measured against each other that details whether the condominium is operating within the guidelines of its budget. For example, it will list how much money was spent on electricity, repairs, and so on, compared with the allocation for those expenses in that month’s budget. It is prepared by an accountant or the management company operating the condominium.
The board can make changes to the corporation, except in cases where the changes would amount to more than 10 per cent of the overall budget, in which case the owners are entitled to vote to support or object to a proposed change. Condominiums are not allowed to operate in a deficit – in other words, the condominium cannot spend more money than it is taking in. If expenditures become larger than revenues, boards have to use the surplus or contingency fund or increase fees in order to cover the difference. Deficits must be covered within a year after they occur. If the unit owners lose faith in the board’s ability to manage the corporation, they can request a special meeting to have it dismissed and replaced with new members.