Hi Shirin,

Strata Tip of the Week - Watch Out For Stratas “Padding Their Budget”

Some stratas place a great amount of emphasis on minimizing strata fee increases. If you’ve read our email titled “The Risks Associated With Low Strata Fees”, you’ll know that strata corporations whose main focus is keeping strata fees as low as possible can, at times, make decisions that lead to low strata fees in the short term, but significantly higher costs to the owners in the long term.

One common strategy that stratas use to minimize strata fees in the present is by “padding their current budget”.

When stratas have had surpluses in previous fiscal years, they often choose to leave these funds in their operating account (often labeled “Retained Earnings” on financial documents). This is common practice, and is not in itself problematic, as having some cash on hand gives the strata the ability to pay its bills when they come due. Having low (cash) funds in the operating account can cause issues, as the strata can end up in a situation where it’s not able to pay its bills on time, having to wait for more strata fees to come in before it is able to do so.

So how do stratas “pad their budget”?

Sometimes stratas use some of the “cash” they have in their operating account (from previous year surpluses), and include these in their current budget. This allows them to minimize having to increase strata fees in their current fiscal year. But, since it’s unrealistic to expect the strata to always have previous year surplus funds to draw from, this practice can be problematic and often forces the strata to have to increase strata fees (often significantly) in the future.