Budget & Financial Statements
A condominium board must prepare and distribute annual financial statements for the previous fiscal year and an annual budget for the current fiscal year. A condo corporation’s fiscal year is the 12-month period for which it tracks the expenses and revenues for its operation. The condo corporation must distribute the budget and financial statements to owners and mortgagees at least 14 days before the annual general meeting (AGM).
At least 30 days before the start of the fiscal year, the condominium corporation must also give a copy of the annual budget to owners and mortgagees. If there are any changes to the budget, the corporation must give a copy of the updated budget to owners as soon as possible.
Potential unit purchasers should review the corporation’s budget and financial statements carefully before buying. Unit owners should also understand what to look for when the board delivers the financial statements and budget each year at the annual general meeting (AGM).
A condominium corporation’s budget shows its revenue sources and how much it expects to spend in the coming fiscal year and over the long term. A corporation’s budget will consist of two key documents:
- The operating budget
- The reserve fund plan
The operating budget outlines where the corporation will get its money and its estimated expenses to maintain and operate the condominium for the next fiscal year. Expenses may include the costs for insurance, utilities, property management, landscaping, cleaning supplies, and professional services of accountants or lawyers. As with all budgets, unexpected costs may arise during the year resulting in changes to the estimated expenses.
The reserve fund plan details how much money needs to be contributed to the reserve fund every year to cover the costs of repairing and replacing the corporation’s real and personal property, common property and managed property (for example, heating systems, entrance doors, building’s roof, etc.).
Owners’ condominium contributions (also known as condo fees) go towards both the operating budget and reserve fund.
Tip for condo boards: it is prudent for a condo board to budget for unexpected costs
A corporation’s financial statements show how money was spent over the previous fiscal year. Financial statements usually include the following documents:
- Balance sheet: a statement of the corporation’s assets and liabilities
- Income statement: a statement showing the money coming into and leaving the corporation
- Cash flow statement: a statement showing the flow of cash into and out of the corporation’s accounts broken down by operating, investing, and financing activities
Ideally, the financial statements will show the corporation didn’t spend more than it received. If a corporation regularly goes over budget, this could be cause for concern about the financial health of the corporation.
This information differs depending on whether it is a resale unit or new development.
One of the benefits of purchasing a resale condominium unit is that you can request and review the condominium corporation’s budget and financial statements. Generally, the larger the operating budget, the higher the condominium contributions (fees).
Look for the following information in the financial statements and budget:
- Who prepared the budget? An accounting firm, the property manager, or a board member?
- What is the corporation spending money on?
- What services are covered in the budget? Are you planning to use all of the services? Generally, if more services are available, it also means higher condo fees.
- Is the corporation regularly spending more than it takes in? This could be a sign of future financial problems that may lead to special levies being imposed or steep increases in owners’ contributions.
- Are the owners’ condominium contributions covering day-to-day expenses and ensuring the reserve fund is adequately topped up?
You should get help from an expert to help you review the corporation’s financial documents.
If you are purchasing a new development, the developer must provide you with the most recent budget or proposed budget. Be aware that proposed budgets can change drastically once the condominium is fully occupied and operating. This means that owners’ condominium contributions (fees) could increase significantly once actual operating costs are determined.
For a complete overview of what you need to know about condo finances before you buy, download our free publication: Before You Buy: Understanding Condo Finances.
As a condominium owner, it is important to review the budget, financial statements, and annual report before the corporation’s annual general meeting.
Review the financial statements to see if the corporation spent more money than it took in. If it did, was there any communication about why this happened and how the corporation plans to prevent it from occurring again?
Review the operating budget to see if there are any increasing (or decreasing) expenses. If there is a significant change, was there any communication about it? How will increased expenditures be paid? Will there be an increase in contributions? A special levy?
Owners are responsible for approving the corporation’s annual budget each year. Take the time to review the financial statements and budget and ask questions of the board when something is unclear. A financially healthy condominium corporation benefits everyone involved.