Is your condo board lucky enough to have an Accountant among its members? Probably not. Although your property manager may do most of the heavy lifting, the Board of Directors are 100% responsible for the budget, the document that defines your corporation’s fees. Creating and reviewing the budget each year helps boards understand where the money goes and ensures there are enough funds available to cover upcoming costs.

A budget is an estimate of how much money will be required and where it will be spent in the following year. It will never match reality exactly, but getting close ensures smooth financial operations for the coming year.

A budget should be realistic and consider known costs, new planned expenditures, some unexpected spending, and any deficit or surplus from the previous year. These planned expenditures will become the basis for the monthly fees.

Some known expenses are easy to plan as they are fixed or predictable. Property management and other annual contracts often define the exact costs, including annual increases. Some expenses, like insurance premiums, can usually be estimated accurately. Your insurer or property manager should be able to identify what typical increase to expect. Remember that you can always contact some service providers for an estimate of what they will be charging for the upcoming year. This helps to make things as accurate as possible.

Other known expenses are more variable. Increases in utility rates are published several months in advance, so exact increases are often available. If they aren’t, they can usually be anticipated reasonably well. However, utility consumption changes from year to year, varying with weather conditions or changes to your building.

A good approach is to plan utility consumption based on the previous two or three years of experience, with a slight bias towards higher consumption when there has been a lot of variability because of something like an unusually warm winter. Another thing to consider is whether there are any changes in building systems (water or energy savings programs or equipment replacements) that may change utility consumption. You can always request a 5 year trial balance from your auditor or property manager to help you visualize these trends.

A crystal ball would help when planning routine repairs like addressing plumbing leaks or door issues, as these tend to be unpredictable. We look at history over the past several years and make our best guess, again with a slight bias towards a higher amount if there has been a lot of variability.

Everything covered above is required. You can’t choose not to pay your utility bills or to cancel your insurance because your fees are high. The goal above is to estimate the non-discretionary spending accurately. If the budgeting process highlights that your water costs seem unreasonable, the process might prompt your board to look into what options are available to bring down those costs. However, don’t yield to the temptation to limit this year’s fee increase by setting an unrealistically low budget based on hope.

With dramatic cost increases in recent years, most boards are reducing discretionary spending, but there may be items you have planned that will add to your costs. Whether you expect to complete kitchen stack cleaning next year as your building is at that age, or you’re planning on new security measures to address a more challenging security environment, it is important to account for those costs.

The board may also want to consider a contingency line item. This accounts for any unanticipated expenditures that could arise during the year. If unused, this would add a surplus to the fund, that may mitigate a significant fee increase the following year. Budgets do not have to be balanced, and should reflect the board’s plan for the year. If the corporation is experiencing cash flow problems, then the budget should reflect more income than expenses in order to get the corporation back into a positive cash flow.

This brings us to the final item. Since a budget is an estimate of future spending, there will always be a difference between budget amounts and actual spending. Reviewing monthly financials is essential to ensure the corporation is on track with the board’s plan for the year. Plans may change mid-year if more spending occurred than originally planned. Regular reviews of the actual spending versus the budgeted amounts throughout the year also help determine the chances of a meaningful deficit or surplus at year-end that should planned for in the next budget.

If you enjoyed this blog and you are interested in learning more, we are holding a lunch and learn session at Bingeman’s on February 20th where we will discuss managing condo finances and board responsibilities in more detail. Hope to see you there!

Written By: John Hayes, Condo Owner & Shalon Chapman, Auditor, RLB LLP

“Water, water everywhere,” is not what you want to be thinking as you’re standing in the living room of a townhouse condominium unit or peering into the lobby of a high-rise. Water inside any attached housing structure means likely damage – furnishings and fixtures, floors and walls; it also means the possibility of rotting wood and mold risks; it means potential liability, and that something has gone terribly wrong.

When property managers and board members worry about weather-related water damage, they are usually thinking about the damage caused by flooding at the bottom of a building, or by a leaky roof at the top. But engineers think in terms of “water intrusion,” which may result from a flood or a leaky roof, but is more likely caused by construction flaws in a building’s envelope – the components that separate the interior from the exterior. Flooding is an act of nature. The conditions that permit water intrusion are man-made. Windows and doors sliding, balconies and surface “transitions” are particularly problematic.

Windows and Siding

It is not the type of windows or siding you select that matters most; it’s how well they are installed. A low-quality product installed correctly can be perfectly water-tight; the best quality product installed poorly will imitate a sieve. One of the most common installation mistakes is the incorrect laying of building envelope materials, such as the house wrap, the flashing, or the siding itself. When this occurs, water isn’t shed properly from one material to another; it accumulates behind the materials and penetrates the structure. Incompatible materials in the building envelope can also permit water intrusion by creating temperature variations that can cause sealants to fail. Failing to recognize how different products perform is another common problem. Brick veneer can certainly look quite nice on buildings but brick isn’t watertight, and if the contractor fails to install “weep holes” through the veneer, the water will not drain properly. If water accumulates behind the veneer, there is a good possibility for mold to form.

Balconies

Outdoor balconies are a common feature. Many balconies are on the same level as the living room floor due to an accessibility requirement, to permit ease of access for someone in a wheelchair. But in a heavy storm, wind-driven rain may be forced under the door sill and into the living room. Some balconies have walls on all sides. A system of drains and pipes conducts water to the ground when it rains. These same pipes may possibly freeze in the winter causing the water to accumulate on the balcony and then flood the attached living rooms.

Cool Designs

Varying materials, using different shapes, and inserting angles all add architectural interest to a building; but every angle you create, every transition you make from one shape or material to another creates a point at which water may intrude. Transition or termination points represent a tiny portion of a building’s envelope, but they account for much of its vulnerability to water. And they don’t always receive the extra water-proofing they require.

 From the Inside Out

While many water intrusion problems result from something builders fail to do, some are caused by what builders, or the subcontractors working for them, do. Consider the plumbers, electricians, and HVAC mechanics who come into a building that has been framed, wrapped, and made water-tight and poke holes through that nice, water-tight surface. The wall penetrations are necessary to make connections that run from the inside out, but they also have to be properly waterproofed, and they often are not. That’s why the small details that can create immense water intrusion risks are so often overlooked.

Controlling the Risks

Water intrusion is a potential risk that the boards and managers of communities can reduce by being mindful, diligent, and proactive.

1. Don’t ignore early signs of water intrusion.
2. Bring in experts at the outset.
3. Don’t assume water intrusion in one unit is an isolated problem.
4. Take care of preventive maintenance.
5. Consider flooding risks.
6. Don’t look for shortcuts.

If the problem is systemic, you will have to deal with it systemically. There are no Band-Aids for water intrusion. If transitions on the building’s surface weren’t set properly, you have to re-do them. If the windows weren’t installed properly, you may not have to replace them, but you will have to re-install them. These measures are going to be expensive. But they will be far less expensive than dealing with the damage water intrusion can do to buildings, to the personal property, health of residents, and to the finances of your condominium. 

Reach out to your condominium board, property manager, or engineer today if you have any questions, or need further guidance on handling water intrusion and potential damage.

Henry J. Jansen, P.Eng., ACCI – President
www.criterium-jansen.com