Finances

Chapter Contents
    1. The Funds
      1. The Operating Fund
      2. The Contingency Reserve Fund
        1. Investing
        2. Interest
        3. Covering a Shortfall in the Operating Fund
    2. Financial Statements
    3. The Budget
      1. Budget Contributions
        1. Operating Fund
        2. Contingency Reserve Fund (CRF)
      2. How to Calculate a CRF Contribution
        1. How a Developer Calculates a CRF Contribution for the First AGM
        2. No CRF Return to Owners Who Sell
        3. Depreciation Report
    4. Schedule of Unit Entitlement
      1. Contribution To Common Expenses
      2. Contribution To A Judgment
      3. Ownership Of Common Property And Common Assets
      4. How A Schedule of Unit Entitlement Works
      5. How a Developer Calculates Unit Entitlement
        1. Unit Entitlement Versus Habitable Area
        2. Statutory Requirements
      6. Can Unit Entitlement Be Changed?
        1. Strata Property Act
        2. Condominium Act
        3. Land Title Act
    5. Expenditures
      1. Operating Funds
      2. Contingency Reserve Funds
      3. Emergency
    6. Borrowing
    7. Collecting Money
      1. Interest and Fines
      2. Demand Notice
      3. Collection Procedures
        1. Certificate of Lien
        2. Certificate of Payment (Form F)
        3. Court Action
        4. Arbitration
    8. Special Levies
      1. Approving A Special Levy
      2. Charging Interest On A Late Special Levy Payment
      3. Depositing Special Levy Funds
        1. Deposits Made Prior to July 1, 2014
      4. Use of Special Levy Funds
      5. Who Pays A Special Levy During The Sale Of A Strata Lot?
        1. The Special Levy Resolution
        2. The Contract Of Purchase And Sale
        3. The Strata Property Act
      6. Recovery of Excess Special Levy Funds
        1. Excess Funds Must Be Returned To Owners
        2. Is A Former Owner Entitled To Share In Excess Special Levy Funds?
        3. What Are A Seller’s Options?
    9. Sections
        1. Strata Corporation Expenditures
        2. Section Expenditures
    10. Distribution of a Strata Corporation’s Property Upon Dissolution

This chapter explains how the owner of each strata lot must contribute to the strata corporation’s common expenses according to a table called the schedule of unit entitlement. This chapter also describes the financial machinery of a strata corporation, including the different roles of an operating fund and a contingency reserve fund, the budget process, strata fees and requirements for a special levy. The chapter also explains how a strata corporation collects money owing to it, including the use of a Certificate of Payment (Form F) or a lien. This chapter also briefly describes the financial powers of a section.

 

The Funds

Section 92 of the Act requires every strata corporation to have two funds: an operating fund and a contingency reserve fund (CRF). The strata corporation must account for each fund separately. 1 All owners must contribute to the funds through their strata fees.

The Operating Fund

The strata corporation must establish an operating fund to pay for common expenses that usually occur one or more times each year or are necessary to obtain a depreciation report. 2 Common expenses are those relating to the common property and common assets of the strata corporation, or in some cases, to limited common property (“LCP”) or which are otherwise required to meet the corporation’s obligations. 3

The Contingency Reserve Fund

The strata corporation must also establish a contingency reserve fund (a “CRF”) to pay for common expenses that usually occur less often than once per year or not at all. The CRF is, in effect, a fund for the strata corporation’s unusual expenses. 4

In McGowan v. Strata Plan NW1018, the Supreme Court of British Columbia held that the legislation does not permit a council to make discretionary expenditures from a revolving painting and roofing fund, where those expenses occur less often than once per year. Such expenses must be funded by the CRF and require a 3/4 vote, unless there are reasonable grounds to believe that immediate expenditure is necessary to ensure safety or prevent significant loss or damage. 5

As of April 9, 2014, expenditures from the CRF only require a majority vote where the expenditures are consistent with the purposes of the fund and will be used to obtain a depreciation report or fund repairs, maintenance or replacement of common property, common assets or those portions of a strata lot a strata corporation is responsible for so long as the expenditures are recommended in a strata corporation’s most recent depreciation report. 6

In Dockside Brewing Co. v. Strata Plan LMS 3837, the court found that certain strata council members acted wrongly by orchestrating the expenditure of operating funds for expenses that should have come out of the CRF. 7 In that case, certain strata council members advanced their own commercial interests by spending the strata corporation’s money to instigate certain legal proceedings, most of which were carried out in the corporation’s name. 8 Given the extraordinary nature of the legal expenses, the CRF should have been used to pay them. This would require a 3/4 vote. Instead, the council members in question sought approval for the legal expenses by including them in the annual budget, which typically needs only a majority vote to pass. At the 2002 annual general meeting (“AGM”), the relevant council members successfully arranged to pass an amendment to the annual budget to add $93,772 to the operating fund for legal expenses. At the 2003 AGM, the same individuals included a further $100,000 in the operating fund budget for related legal expenses, even though at the meeting the voters actually defeated a 3/4 resolution to approve the litigation in question. In each case, it was improper to include these extraordinary legal expenses in the operating fund budget. The court took these improper expenditures into account when finding that the particular council members acted in a way that was unfair or unreasonable to the strata corporation.

Investing

A strata corporation may only invest its CRF money in one or both of the following.

First, the strata corporation may invest some or all of the CRF in insured accounts at savings institutions in the province 9, meaning: 10

  • a bank,
  • a credit union,
  • an extraprovincial trust corporation authorized to carry on deposit business under the Financial Institutions Act 11, or
  • a corporation that is a subsidiary of a bank and is a loan company to which the federal Trust and Loan Companies Act applies 12.

Second, the strata corporation may invest some or all of the money in investments permitted by the regulations 13.

On July 1, 2014, the provincial government replaced the regulations governing investment of CRF money with simpler regulations that make it easier for strata corporations to pursue higher yield investments. The regulations now permit a strata corporation to place CRF money in the following investments: 14

  1. a savings account or chequing account with a financial institution outside of British Columbia insured by the Canada Deposit Insurance Corporation,
  2. a term deposit or a guaranteed investment certificate, if the deposit or certificate
    1. is insured by the Canada Deposit Insurance Corporation or the Credit Union Deposit Insurance Corporation of British Columbia, and
    2. has a predetermined rate or predetermined rates of interest,
  3. a treasury bill issued by the government of Canada,
  4. any bond, debenture or other evidence of indebtedness issued or guaranteed by the government of Canada or a province, or issued by a corporation incorporated under the laws of Canada or a province, if, at the time of purchase,
    1. the bond, debenture or other evidence of indebtedness has a remaining term to maturity of 5 years or less,
    2. the interest and principal of the bond, debenture or other evidence of indebtedness are payable in Canadian dollars, and
    3. the bond, debenture or other evidence of indebtedness has a rating of A or higher from DBRS Limited,
  5. a fixed income exchange-traded fund traded on an exchange in Canada, if, at the time of purchase,
    1. the fund’s portfolio does not contain securities other than bonds, debentures and other evidence of indebtedness,
    2. the holdings in the fund portfolio are denominated in Canadian dollars,
    3. the average remaining term to maturity of the holdings in the fund’s portfolio is 5 years or less, and
    4. 98% or more of the value of the holdings in the fund’s portfolio have a rating of BBB or higher as reported by the issuer of that fund.
Investments Made Prior to July 1, 2014

Where, before July 1, 2014, a strata corporation invested its CRF or special levy funds in accordance with the former requirements, that investment is now grandfathered. In other words, the strata corporation may continue to hold its funds in that investment, even if that investment now conflicts with the current requirements. If, however, the strata corporation liquidates or otherwise disposes of that investment, the corporation may only re-invest the proceeds according to the current requirements.

Before July 1, 2014, the Strata Property Regulation expressly grandfather old investments, including those made under the former Condominium Act. 15 The provincial government has now repealed those sections. For example, section 6.12 of the regulations used to provide that a strata corporation need not comply with the then prevailing investment requirements for special levy funds if the strata corporation had invested the money before those requirements came into force. Similarly, if a strata corporation disposed of an old investment after the then prevailing requirements came into force, then the strata corporation could only invest the proceeds in accordance with then prevailing requirements. Effective July 1st, the provincial government repealed those grandfathering provisions 16.

Apparently, the government now regards those express grandfathering provisions as redundant in view of the Interpretation Act 17. The Interpretation Act protects rights acquired before the repeal of legislation 18.

Interest

The Strata Property Act requires all interest or other income earned on money in the CRF to stay in that fund. 19

Prior to the Strata Property Act, many strata corporations treated the interest accruing from their CRF investments as part of the corporations’ annual revenue. For instance, at the start of a new fiscal year, a strata corporation would transfer all of its interest income earned in the previous fiscal year from its CRF investments to the operating fund. By paying its CRF interest income into the operating fund, the strata corporation could keep strata fees lower. The Strata Property Act prohibits this practice.

Covering a Shortfall in the Operating Fund

Under the former Condominium Act, many strata corporations used their CRFs to cover short-term cash flow shortages. 20 For example, while monthly revenue from maintenance fees is the same through the year, some months are more expensive than others. This usually happens in months when the corporation has large expenses that occur once per year, like insurance premiums. In those months, a corporation would lend itself money from the CRF to cover the shortfall. In the CRF, the corporation recorded the sum due in repayment as a receivable. Typically, any sums borrowed were repaid to the CRF by the end of the fiscal year.

The Strata Property Act allows a strata corporation to lend money from the CRF to its operating fund, but only to the extent permitted by the regulations. 21 Section 6.3 of the regulations allows a strata corporation to lend money from its CRF to the operating fund to cover temporary shortages in the operating fund caused by the irregular billing of expenses set out in the budget.

Where a strata corporation loans CRF money to the operating fund, the corporation must, as soon as feasible, inform the owners about the amount and purpose of the loan. 22 In the case of resident owners, the Strata Property Act permits a strata corporation to inform the development’s residents by any method, including: 23

  1. (a) leaving a document containing the information at a location designated by the strata corporation for the distribution of such information; or
  2. (b) posting a document containing the information in a part of the common property designated by the strata corporation for the posting of such information.

In other words, it is not necessary for a strata corporation to formally deliver a notice to each resident owner, if the corporation uses one of these or any other reasonable method to inform the residents. Of course, the strata corporation must still formally notify any non-resident owner who is entitled to be informed. The requirements for delivering notice are explained in Chapter 12, Meetings.

The loan must be paid back by the end of the same fiscal year.

Financial Statements

Section 6.7 of the regulations requires that a strata corporation’s financial statements must contain:

  • the opening and current balances in the operating fund,
  • the opening and current balances in the CRF,
  • details of the corporation’s income from all sources, except special levies,
  • details of expenditures out of the operating fund, including details of any unapproved expenditures,
  • details of expenditures out of the CRF, including details of any unapproved expenditures, and
  • income and expenditures, if any, by special levy.

A financial statement must be prepared and distributed with the notice of the AGM. A strata corporation may, however, pass a bylaw to permit the corporation to provide a financial summary with the notice, instead of the actual financial statements. If a strata corporation with the necessary bylaw has issued a financial summary with the notice, any person entitled to receive notice of the AGM may, before the meeting, request a copy of the financial statements. In that case, the strata corporation must immediately give that person a copy of the actual financial statements. 24

Since the AGM occurs very near to the fiscal year-end, the Strata Property Act recognizes that it is not possible to have the financial statements for the full year prepared and distributed in advance. The financial statements to be distributed with the notice of the AGM must be prepared for the fiscal year as of a day that is within the two-month period before the date of the AGM. 25

The strata corporation must prepare a financial statement updated to the end of the fiscal year within 57 days after the end of the fiscal year. While section 6.7(2) says the strata corporation must prepare the updated financial statements within “8 weeks”, section 25(5) of the Interpretation Act requires that we calculate this eight week period by excluding the first day and including the last day. This translates into 57 days.

In October 2009 the province passed amendments 26 to the Strata Property Act which, at the date of this writing, are not yet in force. If the province brings these amendments into force, they will require a strata corporation to supply audited financial statements with a proposed budget in advance of an annual general meeting, unless the corporation has, by a 3/4 vote, waived the requirement for audited financials, or the corporation is otherwise exempt. A regulation is necessary to bring these amendments into force. 27

The Budget

Section 6.6 of the regulations says that the budget must contain the following information:

  • the opening balances in the operating fund and the CRF,
  • the estimated income from all sources other than strata fees, itemized by source,
  • the estimated expenditures out of the operating fund, itemized by category of expenditure,
  • the total of all contributions to the operating fund,
  • the total of all contributions to the CRF,
  • each strata lot’s monthly contribution to the operating fund;
  • each strata lot’s monthly contribution to the CRF,
  • the estimated balance in the operating fund at the end of the fiscal year,
  • the estimated balance in the CRF at the end of the fiscal year, and
  • any contributions allocated to a portion of strata lot owners as a result of LCP repair and maintenance costs, costs allocated by type, or arising as a result of the repair and maintenance of portions of strata lots. 28

At each AGM, the owners must approve the budget for the next fiscal year. The proposed budget must be accompanied by the financial statements and distributed with the notice of the AGM. 29

When preparing the budget, note that the Strata Property Act requires a 3/4 vote before a strata corporation may acquire or dispose of personal property with a value over $1,000, unless the strata corporation has a bylaw permitting the acquisition or disposition of personal property beyond the $1,000 limit in the Act. As a result, if the strata corporation wishes to acquire or dispose of personal property over the limit established by the Act or the corporation’s bylaws, that matter cannot simply be approved as part of the budget process, which requires only a majority vote. Instead, a 3/4 vote must be taken for that matter in the budget. 30

During the AGM, the owners may amend the proposed budget by majority vote before the budget itself is put to a vote.

A majority vote is necessary to approve the budget. Within 15 days of passing the budget, the strata corporation must inform owners of any changes to their strata fees resulting from the new budget. 31 In the case of resident owners, the Strata Property Act permits a strata corporation to inform the development’s residents by any method, including: 32

  1. (a) leaving a document containing the information at a location designated by the strata corporation for the distribution of such information; or
  2. (b) posting a document containing the information in a part of the common property designated by the strata corporation for the posting of such information.

In other words, it is not necessary for a strata corporation to formally deliver a notice to each resident owner, if the corporation uses one of these or any other reasonable method to inform the residents. Of course, the strata corporation must still formally notify any non-resident owner who is entitled to be informed. The requirements for delivering notice are explained in Chapter 12, Meetings.

At the end of the fiscal year, if there is a deficit, the Strata Property Act requires the strata corporation to eliminate the deficit during the next fiscal year. 33

If there is a surplus of operating funds at the end of the fiscal year, the Act requires the surplus to be dealt with in one of the following ways, unless the owners determine otherwise by a 3/4 vote at a general meeting. The surplus may be: 34

  • transferred into the CRF,
  • carried forward as part of the operating fund, as a surplus, or
  • used to reduce the total contribution to the next fiscal year’s operating fund.

If the owners fail to approve a budget at an AGM, the strata corporation must, within 31 days, prepare a new budget and place it before a special general meeting for approval by a majority vote. 35 The owners can allow the strata corporation more than 31 days to prepare a new budget, with a 3/4 vote. 36

If a fiscal year to which a budget relates ends before a new budget is approved, the owners must continue to pay the same monthly strata fees to the strata corporation that they were required to pay under the previous budget. Similarly, and pending approval of a new budget, the strata corporation may only spend operating funds in a manner consistent with the previous budget. 37

Budget Contributions

Every owner must contribute to the strata corporation’s operating and contingency reserve funds, respectively. The annual budget establishes the total contribution to both funds required for the fiscal year. 38 The Act refers to this contribution as “strata fees,” although some people informally refer to their contribution as “maintenance fees.”

The general rule is that each owner must pay a proportionate share of the common expenses based on the unit entitlement for his or her strata lot. The schedule of unit entitlement is explained later in this chapter. 39

There are some exceptions to the general rule. Under certain circumstances, only some owners may be required to contribute to a particular expense.

Operating Fund

Each strata lot owner’s monthly contribution to the operating fund must be set out in the budget.

The general rule and its exceptions are explained in detail in Chapter 26, Paying for Repairs.

Contingency Reserve Fund (CRF)

Every year, a strata corporation must evaluate its CRF. If the amount in the CRF has fallen below a certain level, the corporation must contribute funds to the CRF to restore it. Alternatively, if the amount in the CRF exceeds certain minimum requirements, the corporation has the option to contribute more money to the CRF.

The Strata Property Act requires each strata corporation to determine its annual contribution to the CRF according to the regulations. 40 Except for the fiscal year that follows the first annual general meeting, a strata corporation must calculate the amount of the corporation’s contribution to the CRF for each fiscal year. According to the regulations, a strata corporation must use the following criteria to determine the amount of the CRF contribution. 41

Mandatory Contribution

If the amount of money in the CRF is less than 25 per cent (25%) of the total annual budgeted contribution to the operating fund for the fiscal year that has just ended, then a contribution to the CRF is mandatory in the new fiscal year. The strata corporation must contribute to the CRF an amount that is at least ten per cent (10%) 42 of the total contribution to the operating fund for the current year. 43

Optional Contribution

If the amount of money in the CRF is at least 25 per cent (25%), but less than 100 per cent (100%), of the total annual budgeted contribution to the operating fund for the fiscal year that has just ended, a contribution to the CRF is optional. 44 In the new fiscal year, the strata corporation may contribute to the CRF or not. If the strata corporation wants to contribute to the CRF, the corporation may contribute any amount it wishes.

Certain Contributions Previously Prohibited

In the past, the Strata Property Act imposed a ceiling on a strata corporation’s CRF contributions. Effective December 13, 2011 that ceiling disappeared.

Before December 13, 2011 if the money in a strata corporation’s CRF exceeded a certain amount, the Strata Property Act prohibited further contributions in the budget for the new fiscal year, unless the eligible voters voted otherwise. A strata corporation reached its ceiling where the amount of money in its CRF was equal to or greater than 100 per cent (100%) of the total annual budgeted contribution to the operating fund for the fiscal year just ended. If so, the Act prohibited the strata corporation from making any further contribution to the CRF in the new budget year, unless the eligible voters agreed otherwise by a 3/4 vote.

Effective December 13, 2011, the CRF ceiling disappeared. Now, so long as the strata corporation has the mandatory minimum amount in its CRF (as explained above), the corporation may contribute more money to the CRF in the new fiscal year or not, as it wishes. If the strata corporation wants to contribute to the CRF in the new fiscal year, the eligible voters must approve that contribution as part of the ordinary budget approval process after considering any depreciation report, if there is one. 45

How to Calculate a CRF Contribution

When a strata corporation prepares the CRF portion of its budget each year, the corporation needs two pieces of information to decide whether, in the new fiscal year, a CRF contribution is mandatory or optional. Both pieces of information come from the fiscal year that has just ended, or which is about to end.

1. The strata corporation needs to know the amount of money in the CRF as at the last day of the fiscal year that just ended, or the anticipated amount in the case of a fiscal year that is about to end.

2. The strata corporation must determine the total annual budgeted contribution to the operating fund for the fiscal year that has just concluded, or which is about to conclude. In other words, the strata corporation needs to know how much it budgeted for operating expenses in the last fiscal year.

Once the strata corporation has these two pieces of information, it must compare them. If, for example, the amount in the CRF at the end of the last fiscal year was less than 25 per cent (25%) of the total amount budgeted for operating expenses in the last fiscal year’s budget, the strata corporation must make a contribution in the new fiscal year.

In addition, the mandatory contribution must never be less than an amount equal to ten per cent (10%) of the budgeted operating expenses in the new fiscal year.

The following table illustrates how, using the two pieces of information noted above, a strata corporation may determine its CRF contribution.

Calculating If a Contribution to the CRF is Required

Figures from the last fiscal year (the fiscal year just ended or about to end)

Is a contribution to the CRF mandatory in the new fiscal year?

Amount in CRF at fiscal year end

$20,000

Yes, we must contribute an amount equal to at least 10% of our total contribution to the operating fund in the new fiscal year.

Total annual budgeted contribution to the operating fund

$100,000

Percentage of amount in CRF operating budget

20%

Amount in CRF at fiscal year end

$30,000

No. However, we may contribute to the CRF if we want to, in any amount.

Total annual budgeted contribution to the operating fund