Whether you have a seat on the board of your condo association or are simply one of the co-owners, you have an important role to play within the organization. This means it’s important to understand how a condo association works and which elements need to be considered in order to properly manage its finances.
It is generally the responsibility of the board members to manage the association’s finances. For example, these individuals ensure that the association isn’t paying too much in monthly banking fees and they monitor any payments made and sums received.
It is the responsibility of every co-owner to attend the meetings in order to exercise their voting rights in proportion to the value of their share in the property and to find out about decisions made by and on behalf of the association.
Co-owners also have the right to require two signatures for every financial transaction made. This is a way of monitoring payments and ensuring greater protection against fraud.
“All co-owners must exercise. caution, whether or not they’re involved in managing the condo association. You need to be able to trust the person who is named the administrator. Keep an eye on finances and ask to see bank statements, budgets, tenders, etc.,” emphasizes Sandie Robert, Director of Business Accounts at the National Bank.
If you’re not familiar with the finer points of condo associations already, it’s important to learn the basics since it’s a complex subject. There is a breadth of documentation available on the topic. Condominium managers and legal experts also offer advice.
Condo associations generally have three types of accounts:
The key to creating a condo association that’s in good financial health is the contingency fund study. Whether you’re on the board or not, make sure your condo association has an up-to-date study available.
“The contingency fund study enables you to itemize upcoming work to be done and its associated costs, and to determine whether current condo fees are sufficient given the use and depreciation of the building,” emphasizes Laurent Philippe, Product Director at the National Bank. “This way you’ll protect your investment by ensuring the funds necessary for completing major work are available when needed. You’ll also avoid any nasty surprises, like a special premium of thousands of dollars, as well as facilitating the resale of your unit when the time comes.”
“A professional will come and inspect the building: They’ll verify the services offered in the building (elevators, pool, gym, etc.), its location, and the material used for its construction. With this information they will evaluate the depreciation of the building,” adds Philippe.
It’s essential to not only collect the condo fees used to pay for current expenses and future structural improvements, but also to determine the right amount for each co-owner.
Collect condo fees on a monthly basis is recommended in order to simplify management and to quickly spot any co-owners who may be having financial difficulties.
Payments by cheque can be tedious. Instead, you can opt for pre-authorized payments—a method that will ensure regular payments and avoid your having to remind co-owners not to forget to make their payment.
Once the cost of planned improvements is approved by the association, it’s important to plan for their payment and the amounts to be deducted from the contingency fund in order to cover the cost of the work. “You must never use 100 percent of the funds available to have work done. You must always maintain a financial cushion that will enable you to pay for unforeseen problems and conduct emergency repairs on the building,” states Philippe.
If the contingency fund doesn’t contain enough to cover the cost of the work, other means may be necessary to finance renovations and improvements. Special premiums can be levied where each owner must pay an amount proportional to their equity in the property; work to be done can be performed in phases, which is another way of amortizing the cost over a longer period of time; or a long-term loan from a financial institution could be obtained.
The contingency fund is used exclusively to finance major improvements and renovations, so why not make it grow while you’re waiting to put it to use? It could be a winning strategy depending on the work the property has planned in the short, medium, and long term. “It would be smart to use an advisor to help you create a plan and an investment strategy for the contingency funds in order to get a return on that investment,” suggests Robert.
Don’t hesitate to hire or ask for the opinion of an external condo manager. As a neutral party, they will be able to advise the condo association during their decision-making, help with the collection of condo fees and, when necessary, put their network of contacts to good use.
Financial institutions may require that the association appoint an experienced manager before agreeing to provide financing for major work.
There are many elements to take into consideration in order to ensure that your condo association is well managed. For advice, seek the help of experts.
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