Preparing a forecast annual budget is an unavoidable task in co ownership. Its preparation, preliminary examination and adoption will ensure the proper functioning of the syndicate of co-owners. It is up to the Board of Directors to define its terms, in view of the expenses that will have to be paid to allow a syndicate to meet its obligations. The budget also makes it possible to fix the amount of the contributions of each co-owner to the expenses of the co-ownership.
It will be prepared by the Board of Directors or property manager, based on the amounts spent in preceding financial periods, as well as anticipated non-recurring expenses. The preparation of the budget forecast requires time and rigor.
The steps to follow
Before formalizing the budget, four steps must be followed rigorously, namely:
The preparation of the forecast budget may be summarized as appraising precisely the financial imperatives of the co-ownership. This exercise requires directors to be realistic in their forecasts. They should not underestimate or overestimate future expenditures, so that their exercise reflects the actual needs of the co-ownership. This budget must include the amounts required to pay current expenses, as well as those to be paid into the contingency fund and the self-insurance fund. It should be noted that it is up to the Board of Directors to estimate the amounts to be provisioned in this fund. In addition, the provisional budget must take into account any cumulative surplus or deficit of the previous year financial period. If there is a surplus, the directors will have more latitude in their projections, whereas if there is a deficit, it will be the opposite.
The budget forecast generally takes the form of a table that details the following elements:
In other words, all expenses incurred by a syndicate must be included in the budget forecast. Thus, the funds available will meet the needs for the various postings of the co-ownership, such as:
The declaration of co-ownership generally provides that the forecast annual budget must indicate, where applicable, the rate of increase of this budget compared to that of the previous year.
Once completed, the budget forecast is sent to the co-owners by the Board of Directors. In order that they may be validly consulted, financial information must be provided to the co-owners before the annual general meeting. Article 1087 of the Civil Code of Québec stipulates, inter alia, that the documents listed below must accompany the notice of the annual general meeting:
Consulting the co-owners on the budget is an extremely important step. It will allow them to evaluate its content and give their appreciation thereof. Some of them may want to comment on the amounts spent on the various postings. Other co-owners will ask for clarifications, or even suggest amendments thereto. A ''consultative vote'' may even be held, although in principle it has no decision-making value.
Before concluding on the budget issue, it is in the best interest of the directors to listen to the comments voiced by the co-owners. And for good reason, since if it arouses general dissatisfaction, and these same administrators turn a deaf ear, the general meeting of co-owners may not re-elect them. The ballot to re-elect them (or not) in their function usually takes place after the presentation of the budget. In the event they are not re-elected, it will be in their successor’s best interest to take into consideration proposed revision requests, provided those are realistic.
Once the forecast budget consultation completed, the Board of Directors must formalize it. To do so, the directors will meet and adopt it by a majority vote. A written resolution signed by the directors will also be valid. In either case, the resolution of the Board of Directors will be filed in the register of the syndicate.
In a co-ownership budget forecast, all expenditures must be funded by equivalent revenues. Those essentially derive from common expenses (condo fees paid by the co-owners). The latter will receive a notice of assessment indicating the amount of contributions payable and their due date.
The amounts allocated in the budget forecast may vary during the year. For this reason, it is important that the Board of Director or the manager monitor periodically the variances between budgeted and spent amounts. Should any discrepancies be noted, it is the prerogative of the Board of Directors to make adjustments (if necessary) to the budgetary framework of the co-ownership. This could be done through a reduction of expenses, or through a special assessment of the co-owners. The more frequent and accurate the follow-up, the fewer and smaller the adjustments. Be aware that article 1072.1 of the Civil code of Quebec provides that the Board of Directors must also consult the general meeting of the co-owners, before deciding on any special contribution to the common expenses.
WHAT YOU SHOULD KNOW! The expenses associated with the enjoyment of common portions for restricted use must be an integral part of the budget forecast. Consequently, the amounts paid by the co-owners who have the exclusive enjoyment thereof must be taken into account.
WHAT TO KEEP IN MIND: The budget forecast is prepared by the Board of Directors, who can be assisted in this task by the manager of the co-ownership. In principle, this budget is not submitted to the general meeting for approval, but it must nevertheless be discussed at the general meeting of the co-owners.
WARNING! The declarations of co-ownership published before the coming into force of the new Civil Code of Quebec in 1994 (generally) provided that the budget should be adopted by the general meeting of co-owners. The Court of Appeal however recognized that it was for the Board of Directors to decide on the final content of the budget. In this case, the declaration of co-ownership included a provision that in the event of a conflict between the said declaration and the law, the latter took precedence. Section 1072 of the Civil Code of Québec specifically recognizes the competence of the Board of Directors to adopt the budget following consultation of the general meeting.
Balance sheet (financial statement) Common expenses (condo fees) Consultation of the Meeting of the co-owners Consultative vote Contingency fund Contingency fund study Financial period Financial statements Forecast annual budget Income statement Items on the agenda Note on the general terms and conditions of any proposed contract or planned work Notice of assessment Operating budget Self-Insurance Fund Special assessment Statement of debts and claims Treasurer Written resolution