Financial Management, Budgets, and Contingency Reserve Funds
The financial structure
Strata corporations must operate two funds: the operating fund (day-to-day expenses) and the contingency reserve fund (CRF) for major repairs and replacement. The CRF must receive at least 10% of the annual operating budget contribution, though the Regulation and bylaws may require more. Interest earned on the CRF stays in the CRF. Money cannot be transferred between funds without owner approval.
Budgets and reporting
An annual operating budget must be prepared and approved by owners at the AGM. The budget must be based on the previous year's actuals plus known changes. Financial statements must be prepared and presented. Special levies require a 3/4 vote at a general meeting unless the expenditure is an emergency repair, in which case the council may act and report to owners.
Depreciation reports
A depreciation report is required every three years (subject to Regulation timing), covering the common property and assets, with a financial forecasting component. It informs CRF planning. Waiving the report requires a 3/4 vote of owners.
Traps
- Forgetting that CRF interest stays in the CRF.
- Assuming council can spend CRF money on unbudgeted items without owner approval.
- Confusing special levy thresholds (3/4) with special resolution (80%).
- Overlooking that emergency repairs allow council action but require reporting.
Rule of thumb
For any expenditure question, first classify it: operating (budgeted), CRF (major repair), or special levy (unbudgeted). The classification determines who approves it and by what threshold.
Worked example
A $25,000 elevator repair is unbudgeted and not an emergency. The council must obtain a 3/4 vote for a special levy; the CRF may fund it only if owners approve the expenditure.