Categories of Expenses in a Strata's Operating Fund
- Andrew Arnold
- Mar 1
- 2 min read
WHY IS A STRATA BUDGET IMPORTANT?
Budgeting is a key responsibility for Stratas and is usually approved at the Annual General Meeting. It is important because it includes an estimate for both operating expenses and the contribution to the Contingency Reserve Fund. The Strata Fees payable by each strata lot is calculated based on these estimates. The creation of a budget is part art and part science, and the Strata Property Act and Regulations provide some guidance and requirements.
We have separate articles discussing the options when their is an Operating Fund surplus and when there is an Operating Fund deficit. We also have an article clearly describing how Strata Fees are different from other payments that an Owner may have to make to the Strata.
WHAT IS THE PURPOSE OF THE OPERATING FUND?
A Strata requires an operating fund to pay for common expenses that occur once a year or more frequently. The amount that the Strata will require for the operating fund should not be based on a guess or intuition. There is a process for estimating the operating expenses.
WHAT IS THE STRUCTURE OF THE OPERATING FUND BUDGET?
The Act and the Regulation impose a structure on the operating fund budget and require that the estimated expenses be “itemized by category of expenditure.” There is no strict definition of what a category of expenditure is, and our recommendation is that these categories are made broadly enough to capture only the highest level of distinction. For example, we recommend that a category be “exterior maintenance” and not multiple categories such as “lawn care”, “window washing”, “gutter cleaning”.
Common expense categories for Stratas can include:
Insurance.
Water and Sewage.
Hydro.
Waste Removal.
Interior Maintenance.
Exterior Maintenance.
Professional Fees.
Although not required, expense categories can be broken down further to reflect specific charges. These should not be distinct categories but instead sub-categories. As an example, interior maintenance could include the sub-categories of:
Plumbing Repairs.
Electrical Repairs.
Carpet Cleaning.
Dryer Vent Cleaning.
When creating a budget, it is helpful to look at the expenses from the previous fiscal year and make adjustments. For example, if hydro has announced an increase in costs, the estimated amount of the expenditure should be increased.
THE USE OF CATEGORIES OF EXPENDITURE IS VERY USEFUL
Structuring the budget by category of expenditure is required by the law and is very useful. It provides a way to organize, monitor, and evaluate expenses of the Strata and helps create a thoughtful budget that is more likely to ensure proper funding is in place for the needs of the community.
Establishing an accurate Operating Fund Budget is critical to resilient and robust Strata Communities. A budget that is inaccurate or that misses entire categories of expenditure can create distrust by Owners regarding the ability to the Council to properly manage and anticipate the actions of the Strata.
When there is a deficit in an Operating Fund Budget the Strata has options on how to address that problem. We briefly describe those options in this article.
