Special levy is the best option since it leaves no debt load
Tony Gioventu
Province
Dear Condo Smarts: Our strata had a bit of a wrestling match at our AGM (annual general meeting) in January. The retiring council proposed a 15-per- cent increase in strata fees, and the owners chopped down the budget and left us with the same as last year.
We’ve just received our insurance renewal, and with the increase in our service contracts and utilities it’s looking like we’re going to be short by about 20 per cent at the end of the year.
In the short term, we’ll borrow the funds from the contingency to pay the bills, but we were wondering if we can amend the budget halfway through the year?
Our property manager says we can, but our accountant advised that we cannot amend the budget half way through the year.
How do we raise additional funds?
— KL, Kelowna
Dear KL: The annual budget proposed at the AGM each year is an estimate of what the strata council and the manager project will be the funding needs for the year.
The Strata Act gives provisions to amend the budget at the annual meeting when it is ratified, but is silent on whether you can amend the budget throughout the year. However, there are other sections of the act that direct us against amending the budget, other than at the AGM.
A strata must prepare a budget for the coming fiscal year, which is passed by majority vote at the AGM. The fiscal year is a 12-month period and there is only one annual general meeting for the corporation.
In addition to those limitations, the strata has to remember that when someone sells a unit, they have likely provided the purchaser with a Form B information certificate that show the monthly strata fees and disclose any amount by which the strata may exceed the expenses in the budgeted year.
There can also be additional costs with changing formulas halfway through the year.
This leaves you with basically two options: You can continue to the end of the year and report the deficit to the owners, which they will have to pay in the following year, or you can call a special general meeting and approve a special levy to offset the additional expenses.
The special levy is the best option. It provides the owners with notice of the funding crisis and at the end of the year you won’t be left with a debt burden.
Look at it this way: If you get to the end of the year and you are 20 per cent short on fees, then automatically next year’s fees are going to be 20 per cent higher, along with the projected increases for the following year, which under the current energy market could be substantial.
At the very least, strata corporations need to budget conservatively and include the cost-of-living in their annual projections. They must also annually assess the financial status of the reserve fund.
If you’ve been paying for emergency costs or insurance deductibles from your reserves, replenish them.
Don’t forget that the carbon tax comes into effect on July 1, 2008. This tax also applies to residential services. It won’t have a significant effect on most budgets in 2008, but will later on.
The tax imposed on each fuel type will be proportional to the greenhouse gas emissions produced by burning the fuel, measured in terms of tonnes of CO2 produced (or the equivalent for other greenhouse gases).
The tax will start on July 1 at a rate of $10 per tonne, and will rise by $5 per year up to $30 by 2012. The current rates per fuel type will be:
– Gasoline: 2.41 cents per litre in 2008, rising to 7.24 cents per litre by 2012.
– Natural gas: 49.88 cents per GJ in 2008, rising to 149.64 cents per GJ by 2012.
– Electricity: There will be no carbon tax on electricity.
Tony Gioventu is executive director of the Condominium Home Owners Association (CHOA). E-mail: [email protected]