Forecast annual budget

Preparing a forecast annual budget is an unavoidable task in a co-ownership (condominium); its preparation, preliminary examination and adoption will ensure the proper functioning of the syndicate of co-owners. It is up to the board of directors to define the terms of the forecast annual budget based on the expenses that will have to be paid to allow the syndicate to respect its obligations; the budget also makes it possible to fix the amount of the contributions of each co-owner related to the expenses of the co-ownership.

Everything is prepared by the board of directors or by the manager of the immovable and so, based on the amounts spent in previous financial periods as well as anticipated non-recurring expenses; the preparation of the forecast annual budget requires time and thoroughness.

Steps to follow

Before formalizing the forecast annual budget, four steps must be followed and respected rigorously:

• its preparation;
• the sending of the budget with the accounting data to the co-owners with the notice of meeting to the meeting of the co-owners;
• the consultation by the co-owners of the budget submitted by the board of directors;
• its adoption by the board of directors.

Budget preparation

The preparation of the forecast annual budget may be summarized as calculating precisely the financial imperatives of the co-ownership. This exercise requires directors to be realistic in their projections; they should not underestimate or overestimate future expenditures so that their exercise reflects the actual needs of the co-ownership. The forecast annual budget must include the amounts required to pay current expenses as well as those regarding the contingency fund and the self-insurance fund; it should be noted that it is up to the board of directors to estimate the amounts to be provisioned in the contingency fund. In addition, the forecast annual budget must take into account any cumulative surplus or deficit of the previous year's financial period; if there is a surplus, the directors will have more latitude in their projections whereas if there is a deficit, there will a smaller margin for error.

The forecast annual budget generally takes the form of a table that details the following elements:

• the budgetary resources allocated for each item of expenditure for the upcoming year;
• the previous financial year budget;
• the deviations between budgeted expenditures and those made in the previous financial year;
• the actual results based on the current year's financial statements or a projection as accurate as possible if they are not available at the time of the presentation of the budget.

All expenses incurred by a syndicate must be included in the forecast annual budget; thus, the funds available will meet the needs for the various postings of the co-ownership:

• work carried out to ensure the preservation of the immovable;
• costs regarding the maintenance of the common portions, condo fees (examples: cleaning and snow removal);
• the janitor's salary;
• energy consumption;
• the syndicate’s insurance premiums;
• the day-to-day administration and management of the immovable;
• fees paid to professionals.

The declaration of co-ownership generally specifies that the forecast annual budget must indicate the rate of increase of this budget compared to the one of the previous year.

Transmission of the budget and of the accounting data

Once completed, the forecast annual budget is sent to the co-owners by the board of directors; in order that they are properly consulted, the financial information must be provided to the co-owners before the annual meeting. Section 1087 of the Civil Code of Québec stipulates that the documents listed below must accompany the notice of the annual meeting:

• the balance sheet;
• the income statement for the preceding financial period;
• the statement of debts and claims;
• a note on the essential terms and conditions of any proposed contract or planned work.

Consultation

Consulting the co-owners on the forecast annual budget is an extremely important step; it will allow them to evaluate its content and give their appreciation thereof and some may want to comment on the amounts spent on the various postings whereas others will ask for clarifications or even suggest amendments thereto. Also, although in principle it has no decsion-making value, a ''consultative vote'' may even be held.

Before concluding on the budget issue, it is in the best interest of the directors to listen to the comments voiced by the co-owners and for good reason because if general dissatisfaction arouses, the annual meeting of co-owners may not re-elect them.

Adoption of the budget

Section 1072 of the Civil Code of Québec states that each year, after consultation of the annual meeting of co-owners, the board of directors determines the contribution of the co-owners related to the common expenses which includes the sums required to meet the expenses arising from the co-ownership as well as the sums regarding the contingency fund and the self-insurance fund. Once the consultation of forecast annual budget has been completed, the board of directors must formalize it; to do so, the directors will meet up and adopt it by a majority vote. A written resolution signed by all of the directors will also be valid; in either case, the resolution of the board of directors will be filed in the register of the syndicate.

Funding

In a co-ownership forecast annual budget, all expenditures must be funded by equivalent revenues; essentially, these derive from common expenses (condo fees paid by the co-owners) of which the latter will receive a notice of assessment indicating the amount of contributions payable and their due date.

Follow-up

The amounts allocated in the forecast annual budget may vary during the year and this is why it is important that the board of directors or the manager monitor periodically the variances between budgeted and spent amounts. Should any discrepancies be noted, it is the prerogative of the board of directors to make the necessary adjustments to the budgetary framework of the co-ownership; this could be done through a reduction of expenses or through a special assessment of the co-owners. The more frequent and accurate the follow-up, the fewer and smaller the adjustments. It is important to remember that section 1072.1 of the Civil code of Québec mentions that the board of directors must also consult the annual meeting of the co-owners before deciding on any special contribution regarding the common expenses.

WHAT YOU SHOULD KNOW! The expenses associated with the enjoyment of common portions for restricted use must be an integral part of the forecast annual budget; consequently, the amounts paid by the co-owners who have the exclusive enjoyment thereof must be taken into account.

WHAT TO KEEP IN MIND: ​ The forecast annual budget is prepared by the board of directors who can be assisted in this task by the manager of the co-ownership; in principle, this budget is not submitted to the meeting of the co-owners for approval but it must nevertheless be discussed at the meeting of the co-owners.

WARNING! The declarations of co-ownerships published before the coming into force of the new Civil Code of Québec in 1994 generally specified that the forecast annual budget should be adopted by the meeting of co-owners. The Superior Court of Québec, in a very detailed judgement, decided that the law prevails over the provisions of a 1984 declaration of co-ownership that required the assembly's approval of the budget stating that decisions related to building maintenance fall under the board of directors and so, in accordance with section 1072 C.c.Q.

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