CONDOCENTRIC: Budget Deficiencies

On the first year agenda for a condominium corporation is the reporting of any first year budget deficiencies to the Declarant. Under the Condominium Act, 1998 (Ontario) (the "Act"), a Declarant is accountable to the corporation for the budget statements that cover the one-year period immediately following registration of the declaration and description (the "First Year").

The disclosure package always includes a first year budget, which outlines the anticipated common expenses to be included in the First Year in the operation of a corporation. Under section 75, of the Act, the Declarant has a clear obligation to pay the corporation the amount by which the total actual amount of common expenses incurred for the period covered by the budget statement exceeds the total budgeted amount. In other words, to the extent that the Declarant was incorrect in assessing what the operating expenses would be in the first year, the Declarant is obligated to make up the deficiency. Under this same section, the Declarant is obligated to pay to a corporation the amount by which the total actual amount of the fees, charges, rents and other revenue paid or to be paid to the corporation during the period covered by the budget statement for use in any part of the common elements or assets or other facilities related to the property is less than the total budgeted amount. The Declarant does also have a right of set-off and may deduct the actual set-off any excess in revenues (i.e. Where aggregate of fees, charges, reals and other revenue is greater than budgeted revenues) against the budget deficiency.

Timing is critical. Within thirty (30) days of receiving the audited financial statements for the First Year, the board must compare the actual common expenses against the budgeted figures and must give written notice to the Declarant of the amount that the Declarant is required to pay to the corporation under this section. The time for payment is within thirty (30) days of receiving the boards notice. At this time there is very limited caselaw that addresses discrepancies between the actual budgeted costs and those projected by the developer. However, we anticipate, in light of the number of condominiums that have been built in the last few years, that this issue may result in more caselaw that specifically addresses a Declarant's obligations. Interestingly, the legislation does not provide for any "reasonableness" or any other qualitative or quantifiable threshold that the actual budgeted cost must meet. The Act is very specific and to the extent that the courts start to interpret this section with thresholds, the courts will be re-writing the Act, which is really a job for the Legislature.

From “Common Elements” Winter/Spring 2004

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