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Watch out for Stratas “Padding Their Budget”

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 surplus 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’re due. Having low funds in the operating account can cause issues, as the strata may not be 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”?

This tactic involves using surplus funds from previous years to artificially reduce the need for strata fee increases in the current budget. 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 may require the strata to increase strata fees (often significantly) in the future.


It’s therefore important to thoroughly review the strata’s current budget, to determine if it’s employing this tactic. You’ll most often see these “paddedamounts” listed in a strata’s budget as follows (or a variation of):

  • Income from Past Fiscal Year

  • Previous Year Surplus

  • Income Carried Forward

 
If this amount makes up a significant portion of the strata’s current year operating budget (we’d say anything over 5%) it’s important to make sure your clients are aware and understand how this may impact them in the future.

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