Quick links
- Webinar video: Spending money: the CRF, operating fund, special levies and more
- STRATACCOUNT: A simple accounting program for BC stratas
- STRATACCOUNT: video demonstration
- BC Strata Housing: Budgeting and strata fees
- BC Strata Housing: Financial best practices for stratas
- BC Strata Housing: Common expenses in a strata corporation
What is a budget?
Part of your monthly strata fee goes to the operating fund and part of it is a contribution to the contingency reserve fund (CRF). The amount of your strata fee is determined by the budget passed by a majority of the owners each year at the annual general meeting (AGM). This article is about the operating fund which is used to pay common expenses that usually occur either once a year or more often than once a year. If an expense occurs less often than once a year or rarely occurs, such as capital projects, the expense must be paid from the CRF or by special levy. See spending money to learn more about which expenses can be paid from the operating fund, the CRF, or by special levies.
Strata Property Act (SPA) s. 103 says the strata corporation must prepare “a budget” for the coming fiscal year for approval by a resolution to be passed by a majority vote at each annual general meeting and that the budget must contain the information required by the regulations. Learn more about approval of the budget at an AGM and strata fees.
Regulation 6.6 (1) says “For the purposes of section 103 (3) of the Act, the budget must contain the following information for the fiscal year to which the budget relates”:
(a) the opening balance in the operating fund and the contingency reserve fund
(b) the estimated income from all sources other than strata fees, itemized by source
(c) the estimated expenditures out of the operating fund, itemized by category of expenditure
(d) the total of all contributions to the operating fund
(e) the total of all contributions to the contingency reserve fund
(f) each strata lot’s monthly contribution to the operating fund
(g) each strata lot’s monthly contribution to the contingency reserve fund
(h) the estimated balance in the operating fund at the end of the fiscal year
(i) the estimated balance in the contingency reserve fund at the end of the fiscal year
As you can see the regulation requires information about the operating fund and the CRF. As they are 2 separate funds, it’s recommended that the strata prepare 2 budgets: a budget for the operating fund and a separate budget for the CRF.
The “CRF budget”
The presentation of this budget is fairly simple.
- Start with the opening balance: the estimated value of all monies in the CRF bank account and investments on the first day of the fiscal year
- Add the proposed contributions to the CRF in the coming year
- Add an estimate of the interest that will be earned in CRF bank accounts and investments
- Subtract the expenses that the strata expects to pay from the CRF such as projects that have been approved at an AGM or SGM
- The result is the estimated balance at the end of that fiscal year
If the AGM includes resolutions for owners to vote on projects that would be funded from the CRF, the budget can be adjusted after the AGM to remove amounts for any resolutions that were amended or failed.
The “Operating budget”
SPA s. 92 says, to meet its expenses the strata corporation must establish, and the owners must contribute, by means of strata fees, to:
(a) an operating fund for common expenses that
(i) usually occur either once a year or more often than once a year
(ii) are necessary to obtain a depreciation report under section 94, or
(iii) are necessary to obtain an electrical planning report under section 94.1, and
(b) a contingency reserve fund for common expenses that usually occur less often than once a year or that do not usually occur.
Therefore the “operating budget” contains 3 sections:
1. Revenue
2. Expenses from the operating fund, and
3. The contribution to the CRF
If the amount of money budgeted to come in equals the amount budgeted to be spent, it is a “balanced” budget.
1. Revenue
In addition to strata fees, the strata may have revenue from interest, fines, and certain services provided to residents such as renting a parking stall or locker, selling keys or fobs, and user fees for EV charging or renting a guest suite. Stratas that supply electricity to electric vehicle charging stations may be eligible to earn revenue from low carbon fuel credits.
Some strata corporations also have revenue from commercial activities such as operating a golf course or marina, or leasing space for a cell tower.
2. Operating expenses
Regulation 6.6 states that the expenditures should be “itemized by category” but doesn’t specify what those categories should be. When preparing a proposed budget, it’s up to the council to decide how broad or specific the categories are. If the categories are overly general it’s difficult for council members and owners to know what expenses are permitted. If the categories are extremely specific it’s difficult to stay on budget for every line item.
Every strata is different. Categories will vary depending on characteristics of the property and buildings. If they happen at least once every year, common expenses might include strata management, insurance, electricity, gas, water and sewer, waste removal, janitorial and carpet cleaning, window washing, cleaning roofs and gutters, pressure washing walkways and parking areas, dryer vent cleaning, landscaping, elevator maintenance, fire safety inspections and maintenance, telephone and office expenses, routine repair and maintenance, clearing drains, security monitoring, maintaining locks and entry systems, and more. There may also be bylaws that make the strata responsible for things like inspecting or maintaining fireplaces. An expense to obtain a depreciation report or an electrical planning report is permitted by the SPA even though they don’t occur every year.
When estimating the budget needed for each category of expenses, it’s helpful to look at:
- Trends: determine a reasonable amount based on previous years. If snow removal expenses were $3,000, $8,000, and zero over the last 3 years, council might budget $5,000 for the coming year.
- Contractual increases: check contracts for service providers such as strata managers, landscapers, and waste removal.
- Rate increases: check for planned increases in rates from utilities such as water, gas, and electricity.
- Frequency of services: budget for any changes in the frequency of services such as cleaning the carpets more often than in previous years or increasing the frequency of garbage pick-up.
- Unknowns: budget a bit higher in certain categories such as repair and maintenance to allow for unanticipated expenses. Budgeting “too tight” can lead to a shortage of funds and ending the year in a deficit.
3. Contribution to the CRF
SPA s. 93 says “Subject to the requirements set out in the regulations, the strata corporation must determine the amount of the annual contribution to the contingency reserve fund.”
Regulation 6.1 says
(1) For the purposes of section 93 of the Act, the amount of the annual contribution to the contingency reserve fund for a fiscal year…must be determined after consideration of the most recent depreciation report, if any, obtained under section 94 of the Act.
(2) The amount of the annual contribution must be at least 10% of the total amount budgeted for the contribution to the operating fund for the current fiscal year.
This means that strata corporations and strata sections must contribute money to the CRF every year. Council must review the depreciation report to determine the appropriate amount each year. It must be at least 10% of the total amount budgeted for the operating fund. There is no maximum.
For example, a strata corporation (or section) prepared a proposed budget with operating expenses of $50,000. The treasurer informs council that the minimum contribution to the CRF is $5,000. However, after reviewing the depreciation report, she recommends a higher contribution to the CRF to help pay for a window project in 5 years. She recommends that council present a proposed budget that contributes $20,000 to the CRF.
Schedule of strata fees
The draft budget shows the total of all contributions to the operating fund and CRF. Those amounts are used to calculate the proposed strata fees. The schedule of strata fees shows each strata lot’s monthly contribution to the operating fund and the CRF. Learn about unit entitlement and how strata fees are calculated.
Budgets for strata sections and types of strata lots
Budget requirements regulation 6.6 (2) says “If contributions to the operating fund are calculated by section 6.4 (1) or (2), 6.5 (1), 11.2 (1) or (2) or 11.3 (1) of this regulation, those contributions must be identified separately in the budget.” What does that mean?!?
Some stratas have bylaws that create types of strata lots. In these situations, there are separate calculations for certain operating expenses. For example, a strata corporation might have some strata lots with gas fireplaces and some without. The strata could pass a bylaw that creates a gas fireplace “type” of strata lot for the purpose of allocating monthly gas expenses to those strata lots. The contributions needed to cover those gas expenses must be identified separately in the budget. The owners in the those strata lots would pay their regular strata fee plus an amount for their “type” of strata lot.
Similarly strata bylaws can take responsibility for the repair and maintenance of specified portions of some but not all of the strata lots and the operating expense can be allocated as above.
Many stratas have bylaws that create “sections”. Think of these as mini strata corporations within the main strata corporation. For example, the bylaws might create Section 1 for the residential strata lots, Section 2 for a restaurant strata lot, and section 3 for commercial office strata lots. In addition to the strata corporation, each section must hold an annual general meeting, pass a budget for the common expenses that are the responsibility of that section, and elect a section executive (mini council).
Visit the BC Strata Housing website to learn more about the allocation of expenses in strata sections and types of strata lots.
Including the proposed budget in the AGM notice
SPA s. 45 and 103 require the proposed budget (including the schedule of strata fees) to be distributed with the notice of the annual general meeting (AGM). See getting ready for an AGM or SGM to learn what information needs to be included in the notice.
Approving the budget at the AGM
SPA s. 103 says that the strata corporation must prepare a budget for the coming fiscal year for approval by a resolution to be passed by a majority vote at each AGM. See how to conduct an AGM and about voting and proxies to learn about approving the budget.
The budget approved by the owners at the AGM determines the amount of strata fees that must be paid during the fiscal year. Within 2 weeks following the AGM, the strata corporation must inform owners of any changes to their strata fees. Since there may be a higher amount one month to “catch up”, it’s helpful to include a payment schedule.
What happens if the budget isn’t approved?
If a budget is not approved at an AGM, the strata must hold a SGM within 30 days to present a new budget (SPA s. 104). Owners must pay the same strata fees until a new budget is approved. During this period council has limited spending powers. Until a new budget is approved, council may only spend money on the type of expenses that are set out in the previous budget and only up to the maximum amount set out in the previous budget for each category of expense.
Surpluses and deficits
When preparing a proposed budget for the coming year, council must first assess the current year ending. Actual expenses incurred over the course of the year will almost always be higher or lower than budgeted. At the end of the year, there will be a “surplus” or a “deficit”. The financial statements for the year ending must show the amount of the surplus or deficit.
SPA s. 105 sets out the permitted methods to deal with a surplus or deficit.
- Under SPA s. 105 (1) (c), if a surplus is “used to reduce the total contribution to the next fiscal year’s operating fund” it must be shown in the budget for coming year. This may result in lower strata fees.
- Under SPA s. 105 (4), a deficit must be eliminated during the next fiscal year. This can be resolved by raising strata fees in the budget for the coming year.
See strata financial statements to learn more about the options under the SPA to deal with a surplus or deficit.
Member-only resources
Log in to your account to access the following resources. *Indicates a resource for corporate members only.
- Worksheet for creating a budget and calculating strata fees by unit entitlement (Excel)*
- Worksheet for calculating a special levy by unit entitlement (Excel)*
- Preparing for your strata AGM (slides)*
- Preparing for your strata AGM (webinar Q&A)*
- Sample financial statements*