Strata fees are a crucial part that comes with community living. But for Owners, opening up the AGM Notice Package and reading the proposed operating budget and strata fees to vote on for approval, shouldn’t come with confusion or uncertainty.
Here at Tribe Management, our Mission is to connect communities. We want to provide Strata Councils with the information to help keep communities happy and healthy.
This blog article will help you learn more about how financials in a strata community work and provide you with best practices when it comes to financial planning.
Table of Contents
What are strata fees?
To start off simple, strata fees (or maintenance fees – which can be used interchangeably) are monthly contributions by the Owners to contribute towards the maintenance and upkeep of your community. Strata fees are due on the first of every month and are approved by Owners at the Annual General Meeting (AGM) when you approve the operating budget of your Strata Corporation.
As you move through this article, we’ll continue to build on this definition to learn more about how it all works.
How is my strata fee calculated?
Your individual strata fee is the product of the total contribution of your community multiplied by the unit entitlement of your strata lot, then divided by the total unit entitlement of all the strata lots in your community. This amount indicates the payment you are required to contribute each month for the next twelve months.
Therefore, individual monthly strata fees are assessed based on an Owner’s unit entitlement. This means that the greater the unit entitlement, the greater the fee.
To help you learn how your individual strata fee is calculated, here’s a simple equation for you to use:
Unit entitlement is key to understanding how the financials are divided up in a community.
Unit entitlement is the number assigned to the strata lot of each Owner that determines their share of common property.
Think of a pie. Blueberry…strawberry…or whichever flavour you prefer. This pie represents the entire strata. But when the pie is split into slices, or in this case, strata lots for each Owner, each slice can be a different size. The larger the slice, the greater the unit entitlement. These slices help represent how much each Owner owns the pie as a whole.
The unit entitlement for each strata lot is determined when it is first registered by the developer at the Land Title Office using a form called ‘Form V’.
This number will stay the same throughout the life of a strata with very few exceptions
BONUS: Our Executive VP Management Services & Managing Broker at Tribe Management, Fiona Therrien sat down with MLA to discuss some must-knows on How Strata Fees work for Pre-Sale Purchases.
How much is a typical strata maintenance fee?
Maintenance fees vary greatly from building to building. They depend on the size of the strata, amenities and what is covered by the strata.
For example, some Strata Corporations may choose to cover in-suite fire detector replacements. Generally, most safety-related maintenance and upkeep are covered.
According to recent data from Eli Report, strata fees in Metro Vancouver Metro Vancouver can range from $0.12/square foot to $0.56/square foot, with $0.25/square foot being the average for high rise buildings and $0.18/square foot to a high of $0.94/square foot, with $0.46/square foot being the average for low rise buildings.
Total Budget per Square Foot (Monthly)
Typically, higher strata fees come with buildings that have amenities such as pools, hot tubs or 24-hour staff.
What if my strata fee increases?
As with most operations, it is common (and most likely guaranteed) that your strata fee will increase year over year.
Given that Strata Corporations are required to hold their AGM within 60 days of their year end, it is very common for the month of the year end and the month of the AGM to be different. This means that the strata fees from your previous year’s budget remain in place until the time of your AGM.
Therefore, if there are any increases in your strata fee for the upcoming year, the new fee will be retroactive back to the beginning of the fiscal year – meaning that there will be an amount that Owners need to catch up on as indicated in the AGM Notice and meeting minutes.
For example, if a community had a fiscal year end on December 31st, but a new increased budget (increasing strata fees from $100 to $110) has been approved during the AGM in February, Owners would continue to pay $100 a month in January and February but be required to pay the new approved amount ($110) PLUS the difference in strata fees from January and February ($20 total) – brining the March 1st payment to $130.
Once this difference is made up for, Owners will return to paying the new monthly installment of $110.
Where does my strata fee go?
In BC, there are two funds that every Strata Corporation must maintain.
The operating fund.
This is what is used to pay for common expenses that maintain the building or occur more often than once a year (building insurance, property manager’s fees, gardening, garbage collection).
The contingency reserve fund.
This is used to pay for expenses of a capital nature that occur less than once a year, or for more unusual expenses approved by the Owners at a general meeting (lobby upgrade, new roof, new gutters, sidewalk fixes).
Where do my strata fees go?
Read more about these funds in our next section, and learn about where it comes up on financial statements.
How to read a Strata Fees Schedule?
Every year, you will receive a copy of your AGM Notice Package in the mail prepared by your Strata Council and Community Manager that includes a Strata Fees Schedule. This is the document that you can reference to better understand what the proposed operating budget and strata fees to vote on for approval are for the next year.
At Tribe, we help Strata Councils prepare a clear, and easy-to-read Strata Fees Schedule. A run-down of what can be found in this schedule include:
- A list of all the strata lots, unit numbers, and unit entitlement amounts. This makes searching for the information relevant to your unit easy to find and promotes transparency in the community. This section also indicates the total unit entitlement in a community which is a factor in determining individual strata fees.
- A stated amount of the monthly fees due (calculated with the equation in the previous section). This is the key number you will need to look for in this schedule. This number indicates the monthly amount you will need to pay for the next year which will remain constant until a new budget is passed and approved at the next AGM.
- A breakdown of the proportion of your strata fees allocated to the Operating Fund and the Contingency Reserve Fund. In addition to the information regarding the total monthly strata fee amount required, you will also be able to see how much of that amount will go towards each fund. To learn about what these two funds cover, see the last section on: Where does my strata fee go?
Note: Although the strata fee helps contribute towards two different funds, for Strata Corporations without sections, only one transaction will be required for the amount of your total monthly strata fee via cheque or pre-authorized debit. The amount will be split up by your strata, who will allocate it to the appropriate funds.
- A comparison of the strata fee proposed for this year vs. last year. As mentioned earlier, it is likely that your strata fee will increase year over year. This section reminds you of the monthly strata fee you paid in the prior year, and how much that amount has changed with your new monthly fee.
Note: As an Owner, solely looking at this document is not a good option! You must consider other financial documents provided in your AGM Notice Package to fully understand why you are paying the strata fee you have been assessed for this year. Keep reading to find out what you should look for to learn about the financial health of your community.
How to learn more about the financial health of a community?
You’ve come to the right place. Now that you know about unit entitlements and how to calculate your monthly strata fee based on the numbers provided in your proposed Strata Fee Schedule…let’s look at where these numbers come from using the balance sheet, budget and budget comparison.
Note: The balance sheet, budget and budget comparison will be included in your AGM Notice Package which is delivered via mail.
The balance sheet
At the core of understanding the financial health of your community, the balance sheet is a key indicator of how your community is handling its finances. You can think of this statement as a snapshot of your community’s financial position at the time that the statement is prepared.
In this section, we will cover the basics of what the balance sheet shows
Refers to everything your community owns.
For a strata community, this can include cash stored in the bank for the operating fund, contingency fund and special levies (see our bonus section on special levies below to learn more), term deposits and accounts receivable.
An important thing to note is that if there is a balance in the accounts receivable amount on your balance sheet, then there are outstanding charges that has yet to be collected. This can include outstanding strata maintenance fees, special levies, bylaw fines or invoice chargebacks.
Remember: The numbers provided in the balance sheet capture the financial position of your community on the date which it was prepared (indicated on the top of your statement). This means that any transactions that occur after this date will not be reflected.
If you’re working with a Property Management company, they can help your Strata Council keep track of its financials by providing you with accurate and timely statements. Here at Tribe, we have established systems and procedures to ensure Councils understand the financial position of their Strata Corporation and maintain control of both the cash flow and financial assets. Our Community Managers are experts!
Liabilities refers to everything your community owes.
This includes accrued liabilities (which indicates an expense has been incurred, but where an invoice has yet to be received), amounts that need to be transferred to the contingency reserve fund or special levy account and any accounts payable (or any invoices issued to the community but has yet to be paid).
If you’re working with a Property Management company, your Community Manager can help to ensure that your strata’s budget is properly done so that there are enough funds to pay for recurring maintenance expenses.
Note: At Tribe, we also help advise Councils on proper funding of the CRF the help plan for future capital expenditures.
Equity refers to the remaining value after you subtract your liabilities (what you owe) from your assets (what you own).
In this last section of your balance sheet, you will learn whether your community has an operating surplus or deficit for the year.
If you have a surplus, this brings about a key decision. Owners must decide whether they want to carry that amount forward to the operating budget for the next year or contribute it to the contingency and reserve fund.
Our usual recommendation is to contribute any surplus amounts to the contingency reserve fund. This means that any additional money that has already been collected will go towards funding expenses that occur less than once a year.
Psst…this is one of many useful tips shared in the best practices section of this article.
The operating budget
Next up, we have the operating budget – a document that breaks down all the planned revenues and expenses for the upcoming year.
This document is especially important because it indicates how much it costs to maintain the community and how much the total strata fee should be in order to contribute to these expenses.
To understand this, let’s walk through the two components within this statement.
Revenues refer to the income that your community receives.
Almost all the revenue that a strata receives comes from strata fees, with a small portion stemming from other strata-related operations such as amenity room and guest suite rentals (if your community allows for it), locker rentals, parking stall rentals, or interest income to name a few.
It is important to remember that Strata Corporations are non-profit organizations, meaning that strata does not aim to benefit from any of the revenue collected.
At Tribe, the revenue section of the proposed operating budget we prepare for our communities includes the budgeted and actual amount for the prior fiscal year as well as the proposed budgeted amount for the upcoming year. This proposed amount will then become the approved “budgeted” amount for the community upon a majority vote approval at the AGM (or sometimes at an SGM).
Expenses refers to the costs that your community incurs.
Under this section, you will find all the ways the revenue in your community is being used to help make your building a happier and healthier place. Some of the main categories of expenses you may find in your operating budget are:
- Administration. This includes items such as audit/legal, bank charges, insurance, insurance appraisals, management fees, photocopy/postage/courier fees, wages for concierge and security, management fees and miscellaneous expenses (big red flag here – take a look at our Best Practices section to find out why miscellaneous expenses should be minimized).
- Building.This includes items such as dryer vent cleaning, fire equipment maintenance, gutter cleaning, parking lot upkeep, painting and decorating, pest control, elevator, roof and general repairs/maintenance (another red flag here, our Best Practices section will explain why general repairs/maintenance should be reduced).
- Utilities. This includes items such as electricity, garbage disposal, compactor expenses and telephone/cellular costs.
- Grounds Maintenance. This includes items such as landscaping, road repairs, snow removal, tree maintenance and anything that takes place on strata grounds, but is not associated with the building structure.
Note: This does not include any special projects which are projects that are not accounted for throughout the year (such as an unexpected roof repair of pipe replacement) that require a special levy or a contingency expenditure. Learn more about special levies in our Bonus Section at the end of this article.
All of these expenses are then summed to determine the total expenses for your community.
The budget comparison
To help you navigate this document, we’ve prepared two main ways to help you gain the most out of reading this statement:
- Focus on the Year to Date (YTD) section instead of the Month to Date (MTD) section. By looking at the budget of the entire fiscal year for your strata, you can gain an accurate interpretation of your community’s financials and not be swayed by months which may require significantly more or less expenses.
- Understand why there are variances between the YTD Budget and YTD Actual. Most of the time, there will be a difference between the amount that is budgeted and the actual amount that is collected or paid. The key here is understanding why the variance exists, and whether it needs further investigation. If you’re working with a Community Manager, they would be happy to explain this to your community.
For example, if your community has a maintenance project four times a year, the months that these projects fall in will show greater expenses in comparison to other months…skewing the results.
Note: In cases where there is an underage or overage, this should be indicated in the meeting minutes to ensure it is addressed and communicated to the community.
By now, we hope you’re feeling a bit more comfortable with navigating the different statements within your AGM Notice Package – and remember, we’re always here to help if you have a question.
Budgeting and strata fees best practices
Here comes the fun part – quick tips for you to learn more about the best practices for your strata community when it comes to budgeting and strata fees.
Some of these are explained throughout the article, while others are new tips. Either way, they’re must-knows for you and your community.
Never just look at the Strata Fee Schedule to compare the amount you paid last year vs. the amount proposed for you to pay this year.
An assessment of what needs to be done in the community will always help you understand why you are paying what you are. This means looking at the balance sheet, operating budget and budget comparison.
In the case that your community has an operating surplus at the end of the year, the commonly recommended decision is to contribute that amount towards the contingency reserve fund as opposed to carrying it forward into the operating surplus of the next year.
Do not underbudget!
In the case that your community does not allocate the appropriate amounts to the budget, your actual costs may exceed ones budgeted. This means that your community will incur a deficit where it is underfunded. The best thing to do here is to establish the appropriate expected strata fees required for the coming year and not to downplay your expenses.
Be a community that encourages proactive planning.
If your community does a depreciation report, plan proactively by actively review this report to assess which areas of your building may need remediations or rehabilitation over the next five years. This contrasts with reactive planning where you only start thinking of remediation or rehabilitation once items break or needs fixing. Oftentimes, reactive planning can create financial pressure on Owners as they don’t know when to expect a special levy.
To be a proactive community, this may mean establishing a Council Committee or making it a regular Council duty to take on the responsibility of reviewing the depreciation report and planning early.
Now that we’ve covered how unit entitlement works, how strata fees are calculated and why assessed fees exist by looking at three components of financial reporting, we hope you’re feeling a bit more confident when the time comes for Owners to open up their AGM Notice Packages to find out what their strata fees are proposed to be for the coming year.
At Tribe, we care for our communities like they are our own homes. Financial management is one of the core areas we hope to provide our expertise on to help support communities. If you are interested in learning how a Community Manager can help your community, we’d love to answer any of your questions. Contact us or post a comment below!
[Bonus: Special Levies]
Now that we’ve covered strata fees, let’s take on one more topic: Special Levies.
Special Levies are additional funds collected from Strata (on top of strata sees) for special projects or maintenance. These fees are collected when there are not enough funds in the contingency reserve fund (CRF) or if a vote is conducted to decide against using current CRF funds.
But…how are these different from strata fees? These expenses are ones that have not been included in the budget and can include expenses such as an unplanned roof repair.
If you and your fellow Council Members and Community Manager determine that there’s a need to include a special levy, you will need to pass a ¾ vote at an AGM or SGM.
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