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Condo Smarts: Strata hit by heavy cost of snowfall

Dear Tony: I am the president of my townhouse strata in Surrey. The snowfall that we experienced over the Christmas season will result in our year-end budget being in a deficit and our council is not sure how to handle this.

Dear Tony: I am the president of my townhouse strata in Surrey. The snowfall that we experienced over the Christmas season will result in our year-end budget being in a deficit and our council is not sure how to handle this.

We budgeted for a few days of normal snow, but this has resulted in a dramatic overrun. Does the council have the authority to allocate this to other parts of the budget, or do we simply run a deficit?

Jeannie P.

The Strata Property Act has a simple requirement for operating budget deficits. The deficit must be eliminated during the next fiscal year.

There are two types of budget expenses that occur during the year — those that your strata had planned and the unexpected.

Depending on your budget for the year, it may be possible to have an overrun in one category, but still end up with a balanced or surplus budget. But when adverse conditions or emergencies occur, all plans are vulnerable. The act provides strata corporations with options to deal with emergency expenses or deficits.

A strata corporation may have experienced an emergency, which could be the sudden failure of a boiler, a roof leak or a safety crisis such as a sudden heavy snowfall. These events are emergencies if there are reasonable grounds to believe that an immediate expenditure is necessary to ensure safety or prevent significant loss or damage, physical or otherwise.

Adverse weather conditions do not give a strata time to convene a special general meeting with the required notice for approval of the funds.

The strata council must determine if the expense is necessary, immediate and an emergency. As a result, the strata can spend the funds necessary from the contingency reserve fund for the emergency cost.

There are a few methods to resolve the deficit as part of the operating budget. Strata corporations often maintain a cash surplus in their operating accounts and the deficit payment from the surplus may be approved as part of the approval of the annual budget for the next fiscal year. Or councils can insert a new line item in the next year’s budget for “deficit elimination,” which would be paid as part of strata fees throughout the year.

Your strata corporation can also propose a special levy to pay the deficit, or the amount paid from the contingency reserve fund, both of which require a three-quarter-approval vote. But if the vote fails, the strata is left with a debt it cannot reconcile.

If your strata has the choice, avoid using contingency funds to pay for deficits. If they are legitimate emergencies, they may be directly expensed to the contingency fund, but if they are just a result of poor financial planning, your strata will not only deplete its reserves, but fail to recognize that it requires better budget planning.

Estimates from hard-hit strata corporations that had to address snow removal for lanes and parking areas are indicating a 300 to 400 per cent cost overrun in those line items, so I suspect many strata councils could face deficit budgets this year.

 

Tony Gioventu is executive director of the Condominium Home Owners Association.