April 2025
Condominium corporations are not-for-profit organizations and not supposed to make a profit. After collecting what they think is needed to pay expenses, they need to decide what to do with any surplus that may exist at the end the year.
Each year a budget is created to estimate revenues and expenses for the following year. This is a compilation of known expenses, consideration of past trends and a prediction of what is to be required in the coming year. There may be an emergency float or buffer to cover unexpected expenditures.
At its best, the budget is an estimate. Nobody can predict the future. The goal is to maintain condo fees at the lowest possible level while paying the corporation’s costs. Fiscal responsibility, cash flow management and maintaining operations is a complex task.
A perfect situation where revenues exactly match expenses is virtually impossible. Your end-of-year results should show a surplus – excess funds available at the end of the year – or a deficit which will have to be collected from owners.
It is not uncommon for a newer condominium corporation to maintain lower condo fees while continuing to grow the reserve fund
Owners are given a false impression of what it costs to maintain their home when fees do not rise to cover growing expenses
In practice, it is not uncommon for a newer condominium corporation to maintain lower condo fees while continuing to grow the reserve fund. Rather than apply any surpluses in the following year, they are allowed to grow. At around the 15-year period for the building, things change. There is an increase in operating expenses and reserve fund demands as the building ages that gets funded by the accumulated surplus. Owners are given a false impression of what it costs to maintain their home when fees do not rise to cover growing expenses. Once the surplus is depleted, owners are faced with some combination of dramatic increase in condo fees, a special assessment, or the need to obtain a condo loan to pay for necessary expenditures.
What should the corporation do with a surplus? If deficits must be collected from owners, should an over-contribution or surplus not be returned to them?
In the context of condominium corporation budgeting, a surplus can appear in operations, reserve fund or special assessment.
Operating Surplus
The Condo Act, Section 84(2), does not allow an operating surplus to be returned directly to owners
The Condo Act, Section 84(2), does not allow an operating surplus to be returned directly to owners. One option is to apply a surplus against future common expenses. Another is to pay the surplus into the reserve fund. There is no option for selectively applying part of any surplus on an “as needed” basis.
Reserve Fund Surplus
The Condo Act, Section 95(3), prohibits distribution or reimbursement of reserve fund money to owners or mortgagees
The reserve fund is an asset of the corporation. The Condo Act, Section 95(3), prohibits distribution or reimbursement of reserve fund money to owners or mortgagees. The fund can only be used for major repair and replacement of common elements or assets of the corporation. Income or revenue earned from invested reserve fund money is automatically part of the reserve fund and cannot be removed for other purposes.
Special Assessment Surplus
Once funds are collected as part of a special assessment, they become an asset of the corporation and are not to be reimbursed directly to owners
Once funds are collected as part of a special assessment, they become an asset of the corporation and are not to be reimbursed directly to owners. They can be applied to the following year’s operating budget or to the Reserve Fund.
An exception to these requirements is on termination of the corporation when a surplus can be distributed to owners or mortgagees.
