When you’re buying into a strata building or development, it can be tough to get your head around the various funds and expenses. This outline of strata corporation finances and budgeting, based on the guide from the BC Office of Housing and Construction Standards, can help explain the rules.
To take it back to basics, strata lot owners pay for common expenses – those jointly incurred by all (or a group of) owners – through monthly fees and, if necessary, special levies. Strata fees and the budget are approved each year by majority vote at the strata corporation’s annual general meeting (AGM). Special levies are approved by a minimum three-quarter vote.
Key financial duties of strata owners include:
- paying for common expenses through strata fees and, if necessary, special levies;
- approving strata finances, by voting on the annual budget and other expenditures; and
- ensuring financial controls are in place. Although a strata corporation is run by the elected strata council, and may be assisted by a strata property manager, the responsibility for the strata corporation ultimately remains with the strata owners.
1. Common Expenses
There are two types of common expenses:
- Operating Fund expenses are the day-to-day expenses for common property that occur once a year or more often than once a year and are paid from the operating fund. These can include such things as: utilities, landscaping, cleaning, minor maintenance, strata property management, etc.
- Contingency Reserve Fund (CRF) expenses are for common property expenses that occur less often than once a year and are paid from the contingency reserve fund. These include things such as replacing the roof or upgrading the elevator.
Contingency reserve fund expenses are usually known in advance, identified by a depreciation report and must be approved by a ¾ vote of the owners. However, the CRF can also be used to pay for emergency repairs and insurance deductibles that are a common expense.
Paying for common expenses
Strata lot owners pay strata fees and special levies to pay for common expenses. Contributions to common expenses can also include income from sources such as: interest on investments, fines, parking, monies generated from the laundry room or the rental of common areas such as a guest room.
Common expenses may not apply to all strata lots
It is important to note that in some strata corporations, contributions for common expenses may only apply to some strata lots. Separate sections within a strata corporation are separate legal entities.
- Strata corporations with separate sections must have both separate section budgets and section CRFs for those section expenses that relate exclusively to that section.
- Contributions for the section budget are usually based on the unit entitlement of each strata lot in the section.
- Contributions to the separate section operating fund and the CRF are approved in the separate section annual budget and collected through separate section strata fees.
Strata lots in a section will also contribute to a strata corporation budget and strata corporation CRF for expenses common to strata lots in all sections, or expenses which are shared by more than one section. Note: strata lots that are differentiated as different types of strata lots in a bylaw do not have the power to establish their own operating fund and CRF. However, if a common expense relates exclusively to:
- a type of strata lot identified as a type in a bylaw;
- strata lots with limited common property; or
- strata lot repair and maintenance for which the strata corporation has, by bylaw, taken responsibility;
then contributions for those expenses should be assessed only to the strata lot(s) to which the expense relates.
2. Operating Fund
The strata council is authorized to make expenditures from the operating fund (if the expenditure occurs either once a year or more often than once a year). Operating fund expenditures can be made if approved either in the annual budget or by a resolution passed by a three-quarter vote at a general meeting.
If unapproved, the expenditure, plus all previous unapproved expenditures made in the same fiscal year, may still be made if it does not exceed either:
- the limit for unapproved expenditures set out in a bylaw; or
- if no bylaw exists, the lesser of $2,000 or 5 per cent of the total contributions to the operating fund for the current fiscal year; or
- the expenditure is the minimum amount that the strata council needs to expend in order to ensure safety and prevent significant loss or damage.
The strata council must inform owners as soon as possible about this expenditure.
3. Strata Fees
Each strata lot owner pays strata fees to cover budgeted common expenses. Strata fees are usually paid monthly and include contributions to the operating fund and the contingency reserve fund. Strata fees are set when the budget is approved by majority vote at theAGM. Within two weeks of the budget passing, the strata corporation must inform owners of the new strata fees.
Calculating strata fees
Strata fees are normally calculated by dividing the expenditures in the approved budget among the strata lots on the basis of unit entitlement. In apartment style or townhouse strata developments, unit entitlement is often based on the habitable size of the strata lot. In bareland stratas, unit entitlement is usually equal for each strata lot.
Strata fees may also be calculated by using a formula other than unit entitlement, by passing a unanimous vote on a resolution approving the new formula, and registering the resolution, and the approved formula, in the Land Title and Survey.