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Overcoming budget challenges in today’s market

Dec 14, 2022 | Public | 0 comments

In today’s condo market, inflation and its impact on condo fees is a hot topic. As we come to the end of the COVID-19 pandemic, condos are facing new economic pressures. With consumer inflation impacting costs today, and construction inflation impacting both short-term and long-term capital project costs, many condos are asking: what are some measures for overcoming budgeting challenges and dealing with unexpected costs and deficits?

There are many factors that determine the right level of condo fees for a condominium corporation. The expenses are unique to each building, depending on what is included in the corporation’s operations. But all condominiums in Ontario have one thing in common—their only major source of revenue is contributions made by owners through their monthly fees. Because funds come from individual owners, it is always difficult to communicate a large increase in condo fees as this places financial strain on community members.

In building a better budget there are a few major points of consideration:

  • While it is of course important to ensure that small expenses are not being spent frivolously, place the most focus on the areas of the budget that have the largest impact on the monthly fees. This can help lead to meaningful discussions about how the largest costs can be better managed, lowering overall operating costs.
  • Do not overlook the overall financial position of the corporation. Ensuring that any budget supports a healthy surplus puts a condominium corporation in a better position to handle unexpected costs. A good guideline is to ensure 1-2 months of projected expenses in surplus at any given time, but this can and should be adjusted to reflect the needs of the individual corporation. Consider insurance premiums, deductibles, history of receivables, and any other unique financial issue.
  • Special assessments and sharp increases in fees are not the only options. Especially when dealing with a major shortfall, it’s important for a condo board to complete reasonable due diligence and consider all options which includes borrowing. Only by considering all options can a volunteer board member communicate to owners that they made every effort to budget in the best interests of all owners.
  • Deferral of major projects is not helpful in reducing condo fees. Major components still need to be repaired or replaced at some point, and pushing projects further into the future compromises the value of the property and subjects the corporation to inflationary pressures (the work gets more expensive every year). Construction inflation historically, and today, is very high. The cost of borrowing may be less than the cost of inflation and borrowing funds to complete an important capital repair project, instead of deferring it, helps to protect values.
  • Remember that it’s not realistic to never increase condo fees. Keeping fees affordable and in line with comparable real estate is important but keeping fees artificially low only hurts in the long run. The sooner you start recovering from a shortfall the easier it is long-term.

Ultimately, a budget is a plan that is intended to support the projected costs for the upcoming year. It’s an exercise in reasonability, ensuring that the corporation has enough cash flow to meet its obligations under the Condominium Act and its own declaration and bylaws. If there is concern that a condominium corporation has a shortfall, or needs more funding, being realistic is most important. Condominium boards and the property managers supporting them should explore their options and look for real solutions to help keep fees at reasonable levels.

Often, the best ways to minimize increases are to look objectively at large contract expenses, utility retrofits, and also to develop better plans for long-term capital repair funding. There are experts who can help to guide the process, helping anyone responsible for the preparation of a budget to be confident in their due diligence process and the reasonability of their budget.

Lyndsey McNally is President of the Toronto & Area Chapter of the Canadian Condominium Institute and Director of Condominium Finance at CWB Maximum Financial where she works exclusively with condominium corporations, property managers and other condominium stakeholders to develop and implement customized financing solutions. She is also a licensed condominium manager.

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