| Written by Me Sébastien Fiset , LL.B., B.A.A. |
| Mardi, 30 Novembre 2010 16:20 |
BUDGETS OF A SYNDICATE
Contact the author : s.fiset@fisetlegal.com
One of the responsibilities of the syndicate of co-ownership, executed by its board of directors, is to determine the costs associated with the preservation, maintenance and management of the immovable, as well as the contingency fund (art. 1039, 1071 and 1072 C.c.Q.) and to determine the fees for the common expenses to be attributed to each co-owner. The planning tool of the syndicate used to carry out this task is the provisional budget.
In establishing its budget, the syndicate should take into account the amounts required to establish the contingency fund.
In fact, under article 1071 of the C.c.Q. :
«The syndicate establishes, according to the estimated cost of major repairs and the cost of replacement of common portions, a contingency fund to provide cash funds on a short-term basis allocated exclusively to such repairs and replacement. The syndicate is the owner of the fund. »
The contingency fund should therefore not be used to pay urgent or unforeseen expenses, lawyers, an architect or other building professional, nor to pay for significant works which should come under the maintenance of the immovable or which would be considered as minor repairs made to the building. The contingency fund should be used only for “major repairs” and the “replacement of the common portions”.
Furthermore, the 5% attributed to the contingency fund under the terms of article 1072 of the Civil Code of Québec (below) is the bare minimum. If additional amounts are required for major repairs or replacement of common portions, it is this amount which would prevail.
I. PROCESS
Annually, after consultation with the general assembly of co-owners, the board of directors sets the amounts necessary to cover the common expenses and the contingency fund.[1]
Note: « Consultation » with the general assembly of co-owners does not mean « approval ».
In fact, even though prior to the implementation of the Civil Code of Québec in 1994 it was generally stipulated that the contributions for common expenses and to the contingency fund should be presented by the board of directors to the general assembly of co-owners for preliminary approval, we are of the opinion that due to the mandate expressly conferred on the board of directors by the creation of a legal person (i.e. the syndicates of co-ownership) through legislation, the situation is now different.
In fact, under the terms of article 1072 C.c.Q :
« Each year, the board of directors, after consultation with the general meeting of the co-owners, fixes their contribution for common expenses, after determining the sums required to meet the expenses arising from the co-ownership and the operation of the immovable, and the amounts to be paid into the contingency fund.
The contribution of the co-owners to the contingency fund is at least 5% of their contribution for common expenses. In fixing the contribution, the rights of any co-owner in the common portions for restricted use may be taken into account.
The syndicate, without delay, notifies each co-owner of the amount of his contribution and the date when it is payable. »
[Bold and underlined added]
Articles 1064 and 1072 C.c.Q. meanwhile state that:
«1064. Each co-owner contributes in proportion to the relative value of his fraction to the expenses arising from the co-ownership and from the operation of the immovable and the contingency fund established under article 1071, although only the co-owners who use common portions for restricted use contribute to the costs resulting from those portions. »
« 1072. Each year, the board of directors, after consultation with the general meeting of the co-owners, fixes their contribution for common expenses, after determining the sums required to meet the expenses arising from the co-ownership and the operation of the immovable, and the amounts to be paid into the contingency fund.
The contribution of the co-owners to the contingency fund is at least 5% of their contribution for common expenses. In fixing the contribution, the rights of any co-owner in the common portions for restricted use may be taken into account.
The syndicate, without delay, notifies each co-owner of the amount of his contribution and the date when it is payable. »
[Underlined added]
The budget therefore is the statement of foreseeable receipts and expenses of the co-ownership taking into account, if necessary, the common expenses of co-owners who have common portions with restricted use.
In order to validate the consultation of the co-owners at the general assembly, a « consultative vote » should be held and documented in the minutes of the meeting which should be recorded in the register of the syndicate. In the absence of a vote, we would strongly recommend that details of the discussions concerning the consultation regarding the budget be recorded in the minutes in order to avoid all ambiguity.
The general assembly of co-owners has a right to voice an opinion, it is the law; nevertheless it is the board of directors who make the final decisions, keeping in mind their obligation to ensure the conservation of the immovable (art. 1039 C.c.Q).
In actual fact, the budget will definitely be set during the board of directors’ subsequent meeting, according to the majority of votes of the directors (art. 336 C.c.Q.) or in the form of written unanimous resolutions which will be recorded in the register of the syndicate (art. 354 C.c.Q.).
The fees for common expenses are set in proportion to the relative value of each fraction of the co-ownership (art. 1064 C.c.Q.). This « share » is generally set out and described in the constituting act of the declaration of co-ownership in chart form.[2]
Exception :
Despite the fact that the assembly has no decision making power regarding budgets of the syndicate, its agreement is however necessary for any real estate transaction, taking certain decisions concerning alteration projects, enlargements or improvements of the common portions of the immovable or in the event that any modification is required as to the destination of the immovable.
Article 1097 C.c.Q. stipulates in fact that :
« Decisions respecting the following matters require a majority vote of the co-owners representing 3/4 of the voting rights of all the co-owners:
1° acts of acquisition or alienation of immovables by the syndicate;
2° work for the alteration, enlargement or improvement of the common portions, and the apportionment of its cost;
3° the construction of buildings for the creation of new fractions;
4° the amendment of the constituting act of co-ownership or of the description of the fractions»
[Bold and underlined added]
As for Article 1098 C.c.Q. it stipulates that :
« Decisions on the following matters require a majority vote of 3/4 of the co-owners representing 90% of the voting rights of all the co-owners:
1° to change the destination of the immovable;
2° to authorize the alienation of common portions the retention of which is necessary to the destination of the immovable;
3° to amend the declaration of co-ownership in order to permit the holding of a fraction by several persons having a right of periodical and successive enjoyment. »
II. RULES FOR DETERMINING THE RELATIVE VALUES OF THE FRACTIONS OF CO-OWNERSHIP:
Under the terms of article 1041 C.c.Q. :
« The relative value of each of the fractions of a divided co-ownership with reference to the value of all the fractions together is determined in consideration of the nature, destination, dimensions and location of the private portion of each fraction, but not of its use.
The relative value is specified in the declaration. »
[Underlined added]
In establishing the relative values, the following five (5) criteria are used to determine the share of each co-owner for payment of his common expenses:
– The value of the total fractions;
– The destination of the fractions (permissions, restrictions and interdictions) :
- Residential;
- Commercial;
- Industrial;
- Office;
- etc.
– The nature of the fraction;
– The dimensions of the private portion;
– The location of the private portion (geographical, level in the immovable, view, etc.).
Exceptions :
The usage of the private portion is not a factor. The fact that the destination has been determined makes it unnecessary to define, between parties of the same destination, the type of commercial usage (e.g.: florist, convenience store, restaurant, grocer, etc.).
In fact, certain co-ownerships prior to 1994 made provision that each co-owner would be calculated according to the dimensions of their dwelling unit. Despite the implementation of the Civil Code of Québec, this provision still remains. [3]
III. PERCEPTION :
It is general practice to collect fees for the common expenses on a monthly basis. However, this is not an obligation. Collection could be on a monthly, tri-monthly, or even on a fixed date by way of a special contribution.
Under the terms of article 1072 of the Civil Code of Québec, it is the board of directors who will advise each co-owner, without delay, of the amount of his contributions, including the due date.
However, it is essential to verify the declaration of co-ownership and the building by-laws which may outline different methods of payment.
The syndicate must be diligent in the collection of common expenses. This will guarantee the sustainability of efficient management of the immovable. We invite you to read our text on Recourses for Collecting Regular and Special Assessments.
IV. CONTENTS OF THE BUDGET :
The amounts which should be presented to the co-owners at the general assembly of co-owners will be for the current year (operations budget).
Meanwhile, so that the co-owners may budget their future expenses, as well as to avoid the possibility of a legal hypotheque on a unit of a co-owner who has defaulted, it is strongly advised to forecast the budget on a triennial base (provisional budget for three (3) years), which would mean for the two (2) subsequent years.
Following is an outline of the type of expenses which would generally be found in the budget of a syndicate :
– Insurance
– Electricity/Heating/Air Conditioning
– Maintenance and repairs
– Elevator(s)
– Alarm/fire
– Janitorial service/surveillance
– Office expenses/miscellaneous expenses
– Professionnal expenses and fees
– Management fees
– Salaries of administrators
– Administration expenses
– Window cleaning
– Snow removal
– Green spaces and landscaping
– Amount for contingency fund
– Equipment
Note : It is important to be realistic in determining the budgets. An assessment which is too low may result in a massive increase the following year or it may obligate you to have a special assessment during the year to meet the expenses which were not covered for and the unexpected invoices.
The information provided on this page is general in nature and cannot compensate for the need to obtain legal advice specific to a particular situation.
[1] Art. 1072 C.c.Q.
[2]Article 1053 C.c.Q. :
« A constituting act of co-ownership defines the destination of the immovable, of the exclusive parts and of the common parts.
The act also specifies the relative value of each fraction, indicating how that value was determined, the share of the expenses and the number of votes attached to each fraction and provides any other agreement regarding the immovable or its private or common portions. In addition, it specifies the powers and duties of the board of directors of the syndicate and of the general meeting of the co-owners. »
[3] Article 53 of the Act respecting the implementation of the reform of the Civil Code:
« Divided co-ownership of an immovable established before 1 January 1994 is governed by the new legislation.
However, any stipulation of the declaration of co-ownership which establishes the rule of unanimous approval for decisions changing the destination of the immovable is maintained notwithstanding article 1101 of the new Code.
Notwithstanding article 1064 of the new Code, any stipulation of the declaration of co-ownership which fixes the contribution for expenses arising from the co-ownership and the operation of the immovable on the basis of the dimensions of the private portion of each fraction is also maintained. »
Mise à jour le Samedi, 16 Août 2014 17:15
