Budgeting Tips in Mix-use Communities

SECTIONS – A “Sectioned” legal set-up in a mix-use Strata, where you have different types of Strata Lots with competing interests, will need to have separate Budgets for each legal entity.  Each legal entity must have an “Operating Budget” and a “Contingency Reserve Fund”.

For example: The Residential Condos will have one budget; The Commercial units will have one; and the joined commonly shared areas under the Strata Corporation’s budget, will have one also.

The idea with Sectioned Budgeting is create a fair cost allocation scheme and to avoid Owners having to pay for building areas and systems, which they are not using.

How do we accomplish that?

In theory it should be very simple:  from the very first fiscal year, from the “Owner/Developer”, the service contracts, utilities, Insurance, etc. must be clearly identified as in which areas of the building will that specific contract/service will cover.  Easy examples would be Strata Insurance that would fall under the Strata Corporation’s budget (“joined budget”), since both residential and commercial strata lots will be covered under the Strata Corporation’s insurance policy; On the other hand, if the elevators are not used by the commercial owners, that service contract would fall under the “Residential Section’s” budget and the commercial Owners would not pay into that service; and if the loading dock is designated for commercial use only, all related service contracts will be allocated to the “Commercial Section’s” budget only.

Each year, all three Councils must review the service contracts at their “budget meetings”, prior to finalizing the proposed (three separate) budgets, to ensure all cost allocations are fair and reflected accurately in the Annual General Meeting Notice packages.  I strongly suggest that Councils and Strata Managers use Budget Notes, providing rationales on the proposed budgets (services).

If Owners question the rationale at the meeting, Council should have all answers ready at hand.

Remember to work through this with your service providers as they will be a tremendous help and, in some cases, you may also need to seek legal advice.  Don’t let your mix-use community turn into a hostile place to live, where the Sections are fighting over cost allocations.

Take the time to prepare your budgets correctly as you’re reviewing the service contracts and clarifying questions with your service providers.

AIR-SPACE PARCELS – In this set-up, most often the commercial component of the building is not part of the Strata Corporation and the cost allocations would be detailed in the Developer’s Disclosure Statement, under a “Schedule” or “Cost Share Agreement”.  Depending on the set-up and vision of the Developer either the Non-Strata Commercial or Residential (Strata Corporation) side would be in charge of receiving some or all of the shared expenses/invoices and the agreed upon percentage, as per the Disclosure Statement’s “Schedule”, would be charged back to the other party.  If for whatever reason the Cost Share Agreement is vague and the language used is ambiguous with no specific percentage details, I suggest to both parties to hire a Lawyer to draft a “proper” Cost Share Agreement that will be based on fairness.  The Lawyer will most likely look at the Strata Plans and service contracts to determine the cost splits (who should pay for what?).

TYPES – In some Strata Communities, different types of Strata Lots use or not use different building systems.  A Townhouse may not use the Residential Condo tower’s lobby, elevator, underground parkade, etc., and while they fall under one legal entity, under one Strata Budget, some budget line items would be “typed” and would only pertain to one type of strata lots.   Typed budgeting is recommended for communities, where competing interests are minimal and only a few building systems are in question.  This will help owners foster a friendly, cohesive community, while allocating expenses fairly in each year’s Strata budget.

Laszlo Antal, Associa BC

Licensed Strata Manager / Business Development

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