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Spending money

Paying for common expenses

The strata corporation is responsible for paying “common expenses”. These are expenses “relating to the common property and common assets of the strata corporation, or required to meet any other purpose or obligation of the strata corporation”. The strata pays common expenses from:

  • An operating fund
  • A contingency reserve fund (CRF)
  • Or by special levy

This article focuses on expenses from the operating fund and CRF. Learn more about special levies.

There may be times during the year when council members aren’t sure whether an expense should be paid from the operating fund or the CRF. The key distinction is the frequency of the expense, not the amount of the expense. Does the expense occur at least once per year or less often than once per year? In the video Spending money: the CRF, operating fund, special levies and more, lawyer Shawn M. Smith gives examples from several BC Supreme Court and Civil Resolution Tribunal (CRT) cases where stratas didn’t pay from the correct fund. If an expense arises during the year, council may need to call a special general meeting (SGM) to get owner approval to pay from the CRF or by special levy.

Expenses from the operating fund

SPA s. 97 says that the strata corporation must not spend money from the operating fund unless the expenditure is consistent with the purposes of the fund and authorized in the budget or under other sections of the SPA explained later in this article. What are the “purposes” of the operating fund? SPA s. 92 (a) says the operating fund is for common expenses that:

  • Usually occur either once a year or more often than once a year
  • Are necessary to obtain a depreciation report, or
  • Are necessary to obtain an electrical planning report

Each year at the annual general meeting (AGM), the owners must approve a budget by majority vote. The budget is often referred to as an operating budget because it contains categories for the expenses that will be paid from the operating fund during the year. Learn more about the operating fund and budget.

Temporary loans from the CRF

Is there enough money in the operating fund when a large invoice such as the insurance bill is due? With a majority vote at a council meeting, council may transfer money from the CRF to the operating fund as a temporary loan. The money can only be used to cover a temporary shortage in the operating fund. This means it can only be used to pay for an operating expense. The money must be paid back to the CRF by the end of that fiscal year.

SPA s. 95 (4) The strata corporation may lend money in the contingency reserve fund to the operating fund as permitted by the regulations.

Regulation 6.3 (1) For the purposes of section 95 (4) of the Act, the strata corporation may only lend money in the contingency reserve fund to the operating fund if both of the following conditions are met:

(a) the loan is to be repaid by the end of that fiscal year of the strata corporation

(b) the loan is for the purpose of covering temporary shortages in the operating fund resulting from expenses becoming payable before the budgeted monthly contributions to the operating fund to cover these expenses have been collected

(2) The strata corporation must inform owners as soon as feasible of the amount and purpose of any loan made under this section.

Expenses from the contingency reserve fund

SPA s. 92 (b) says that a contingency reserve fund (CRF) is for common expenses that usually occur less often than once a year or that do not usually occur. SPA s. 96 and 158 provide additional details. Learn more about the CRF.

SPA s 96 says the strata corporation must not spend money from the contingency reserve fund unless the expenditure is

(a) consistent with the purposes of the fund as set out in section 92 (b), and

(b) approved or authorized as follows:

(i) the expenditure is first approved by a resolution passed by

(A) a majority vote at an annual or special general meeting if the expenditure is

(I) necessary to obtain a depreciation report under section 94,

(II) related to the repair, maintenance or replacement recommended in the most current depreciation report obtained under section 94 of common property, common assets or the portions of a strata lot for which the strata corporation has taken responsibility under section 72 (3),

(III) related to the installation of EV charging infrastructure or the management of electricity used by EV charging infrastructure,

(IV) necessary to obtain an electrical planning report under section 94.1, or

(V) necessary to obtain any other report respecting the installation or operation of EV charging infrastructure or the management of electricity used by EV charging infrastructure, or

(B) a 3/4 vote at an annual or special general meeting if the expenditure is not described in clause (A) (I) to (V);

(ii) the expenditure is authorized under section 98.

Paying an insurance deductible

If an insurance deductible must be paid by the strata corporation to repair or replace damaged property, the strata council can decide whether to use money from the CRF or to pass a special levy. A vote of the owners is not required.

SPA s. 158 (3) says despite any other section of this Act or the regulations, strata corporation approval is not required for a special levy or for an expenditure from the contingency reserve fund to cover an insurance deductible required to be paid by the strata corporation to repair or replace damaged property, unless the strata corporation has decided not to repair or replace under section 159.

Unapproved expenditures

The budget is a forecast. There will be times when actual expenses exceed the amount budgeted or are unforeseen. An unapproved expenditure is an expense that was not approved in the budget. The SPA allows the council to make unapproved expenditures in certain circumstances. It also imposes limits and restrictions.

SPA s. 98 says “If a proposed expenditure has not been put forward for approval in the budget or at an annual or special general meeting, the strata corporation may only make the expenditure in accordance with this section.” This section deals with 2 kinds of unapproved expenditures:

 1. Expenses that exceed the approved operating budget, and
2. “Emergency” expenses

1. Expenses that exceed the approved operating budget

SPA s. 98 (2) allows expenses to be paid from the operating fund over the budgeted amount but it sets limits. It says:

(2) Subject to subsection (3), the expenditure may be made out of the operating fund if the expenditure, together with all other unapproved expenditures, whether of the same type or not, that were made under this subsection in the same fiscal year, is
(a) less than the amount set out in the bylaws, or
(b) if the bylaws are silent as to the amount, less than $2 000 or 5% of the total contribution to the operating fund for the current year, whichever is less.
(4) A bylaw setting out an amount for the purposes of subsection (2) (a) may set out further conditions for, or limitations on, any expenditures under that provision.

Here’s a checklist for council to decide if they can make an unapproved expenditure under SPA s 98(2):

  • Does the strata have bylaws that set a different spending limit?
  • Does the expense qualify as an operating expense? Does it occur either once a year or more often than once a year?
  • Is there a category for this type of expense in the budget?

If the expense qualifies as an operating expense in a category in the budget and is within the spending limit in SPA s. 98 (2) (b) or a limit in the bylaws, council might be allowed to spend the money. It would be reasonable to pay the electricity, water, fire safety, and waste removal bills even if they are higher than budgeted.

However, there are different interpretations of SPA s. 98 (2) in CRT decisions. Some cases say that an unapproved expenditure is when money spent in a single budget category exceeds the amount approved for that category even though the overall budget hasn’t been exceeded (e.g., waste removal expenses are $500 more than budgeted). Other cases say it’s where the total expenditures at the end of the fiscal year exceed the approved budget overall (e.g., expenses were higher than expected in a few different categories resulting in $1,800 more than the total budget approved). If council is unsure of whether it can spend money, it might want to seek legal advice.

2. Emergency expenses

The SPA doesn’t use the word “emergency” however it’s helpful to understand this section.

SPA s. 98 (3) says
(3) The expenditure may be made out of the operating fund or contingency reserve fund if there are reasonable grounds to believe that an immediate expenditure is necessary to ensure safety or prevent significant loss or damage, whether physical or otherwise.
(3.1) For the purposes of subsection (3), the prevention of significant loss includes, without limitation, the obtaining and maintaining by the strata corporation of insurance that is required under section 149 or 150 or the strata corporation’s bylaws.
(5) Any expenditure under subsection (3) must not exceed the minimum amount needed to ensure safety or prevent significant loss or damage.
(6) The strata corporation must inform owners as soon as feasible about any expenditure made under subsection (3).

Here’s a checklist for council to decide if they can make an expenditure under SPA s. 98 (3):

  • Is there actually an emergency?
  • Is an immediate expenditure necessary to ensure safety?
  • Is an immediate expenditure necessary to prevent significant loss or damage to the common property or a strata lot?
  • Is the strata at risk of having no insurance because the premium increased significantly with no notice?

Here’s an example of a reasonable application of SPA s. 98 (3): a tree falls and punctures the roof during a rain storm. Water is pouring into a strata lot and the hallway causing damage. Immediate action is required to prevent further damage to the strata lot and common property. Council hires a roofer to do a temporary repair or patch the roof since they may only spend the minimum amount of funds needed to stop the leak. The expense can be paid from the CRF or the operating fund and they must inform owners as soon as possible of the expense. The roofer says that a more permanent repair is needed and suggests replacing the roof. Council calls an SGM for owner approval to pay for the roof replacement project from the CRF or by special levy.

Not every situation is an emergency. SPA s. 98 cannot be used simply because something needs to be repaired or to perform a larger scope of work because the contractor says it would be a better value. The general principle in the SPA is that council is directed by decisions made by owners at an AGM or SGM. Council is restricted in its spending to what is set out in an approved budget, other approved resolutions, and the bylaws. A good rule of thumb is to ask, “Can the repair or other matter wait 3 weeks?” If so, it’s not an emergency. Council has time to call an SGM to seek owner approval. In the video Spending money: the CRF, operating fund, special levies and more, lawyer Shawn M. Smith gives examples of what is and isn’t an emergency.

It’s difficult to predict whether the strata will need the services of a lawyer in the coming year and what the cost might be. It’s recommended to have a line item in the budget for legal expenses or professional services. This can cover unknowns such as getting advice to enforce a bylaw, writing a demand letter for payment, or filing a lien.

Depending on the amount of the legal expense, the strata might be able to go over budget as an unapproved expenditure. See SPA s. 98(2) above. In other situations, a legal expense might qualify as an “emergency” expenditure under SPA s. 98(3) where not responding to an urgent situation could damage the strata corporation in some way. Just because a legal issue arises doesn’t automatically make it an emergency. Do a thoughtful analysis of the situation and consider the consequences. Can the matter wait 3 weeks? If so, it’s not an emergency. Council has time to call a SGM to seek owner approval for the expenditure.

Ending the year with a surplus or deficit

Actual expenses 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 will show the amount of the surplus or deficit. Either the operating budget or the CRF budget for the coming year will show what you’re going to do with it. Learn more about the operating fund and budget and strata financial statements.

Special levies

To learn about special levies, watch the video Spending money: the CRF, operating fund, special levies and more by lawyer Shawn M. Smith or see about special levies.

Can the strata borrow money?

SPA s. 111 allows the strata corporation to borrow money needed to perform its duties. This requires a resolution passed by a 3/4 vote at an AGM or SGM. SPA s. 81 says the strata corporation must not mortgage common property. The loan is usually secured by future strata fees or special levies. Watch the video Borrowing Funds for a Major Strata Project: Loans for BC Strata Corporations.

SPA s. 111 says (1) The strata corporation may, after approval by a resolution passed by a 3/4 vote at an annual or special general meeting, borrow money required by it to exercise its powers and perform its duties and, subject to section 81, may secure the repayment of money borrowed by it, and the payment of interest on that money.

(2) Without limiting subsection (1), the strata corporation may secure the repayment of money borrowed by it, and the payment of interest, by one or more of the following:

(a) a mortgage of property, other than common property

(b) an assignment of unpaid strata fees or special levies

(c) a negotiable instrument.

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)*
  • Sample financial statements*
  • Spending Money: CRF, Operating Fund, Special Levies and More (slides)
  • Spending Money: CRF, Operating Fund, Special Levies and More (transcript and case law)*
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