When the cost estimates for the coming year are presented in the fall, the same question arises in many homeowners’ associations: Who prepares the budget? The clear answer is: In a homeowners’ association, the property manager is generally responsible for preparing the budget. However, the advance payments specified in the budget do not take effect until the homeowners approve them by resolution. It is precisely this process that protects the association from unclear responsibilities and poorly calculated liquidity risks.
Who prepares the budget for the condominium association?
The legal basis for this is found in Section 28 of the Condominium Act. The property manager must prepare a budget for each calendar year. In doing so, the manager prepares the financial plan for the homeowners’ association and determines the estimated advance payments that each owner will be required to make.
The budget is therefore not merely a non-binding forecast. It forms the basis for the monthly maintenance fee payments during the upcoming fiscal period. To ensure the budget takes effect, the owners vote at the owners’ meeting on the advance payments to cover expenses and to build up reserves. Without such a resolution, there is generally no binding new payment obligation based on the new plan.
In practice, this means that the management is responsible for ensuring that the budget is technically sound, complete, and prepared in a timely manner. The owners decide on the amount of the payments. The management advisory board may review the draft and provide guidance to the community, but it does not assume the management’s responsibilities.
What happens under self-governance?
Even homeowners’ associations without an externally contracted property management company need a budget plan. If a unit owner has been appointed as the property manager, that person prepares the draft. If no property manager has been appointed, the association must first establish a viable solution, such as by appointing a property manager or passing a valid resolution to that effect.
Self-management can work for small, manageable properties. However, it requires time, up-to-date expertise, and accurate bookkeeping. Professional preparation becomes particularly valuable when larger maintenance projects, multiple contractors, payment arrears, or disputes over cost allocation arise.
What information should be included in a business plan?
A sound financial plan does not begin with a blanket increase in maintenance fees. It is based on the current annual statement of accounts, existing contracts, expected price trends, and the technical condition of the property. The goal is to realistically reflect the community’s ongoing expenses and ensure sufficient liquidity.
Typical expense items include, among others, insurance, water and sewer, common-area electricity, heating and operating costs, janitorial or cleaning services, landscaping, maintenance, as well as management fees and account maintenance. In addition, there are contributions to the maintenance reserve fund. The appropriate amount of these contributions depends on the age of the building, its existing structural components, any measures already foreseeable, and the status of the reserve fund.
It is also essential to use the correct allocation formula. Not every expense is necessarily allocated based on co-ownership shares. The declaration of division, agreements among the owners, or valid resolutions may provide for different criteria, such as living area, units, or consumption. The management must consistently apply these guidelines in the plan. Otherwise, even a factually correct total amount will still result in inaccurate individual advance payments.
The plan therefore typically includes an overview of the projected total expenses, the planned allocation to reserves, and the advance payments attributable to each unit. It should be clear to owners how the monthly maintenance fee is calculated and why it has changed from the previous year.
From the Cost Estimate to the Owners’ Resolution
Proper preparation begins several months before the start of the new fiscal year. First, the actual costs for the current year are analyzed. If contract adjustments are due—for example, regarding insurance, maintenance, or energy supply—these must be taken into account, as must any known repairs. When prices are uncertain, it’s best to avoid overestimating costs and instead use a conservative and justifiable calculation.
The administration then checks whether the advances made to date are still sufficient. At first glance, lower maintenance fees may seem attractive. However, if the funds are insufficient to cover due bills, this results in additional payments, the expense of sending reminders, and, in the worst-case scenario, cash flow problems. Conversely, advance payments should not be set too high without a clear reason. Transparency fosters acceptance.
Prior to the meeting, the advisory board is often provided with the draft for review. Its role is advisory and supervisory: It can question unusual cost trends, review contract documents, and point out measures that have not been taken into account. It does not replace either the accounting department or the owners’ decision-making.
The owners’ meeting will vote on the advance payments. The resolution should clearly state the period for which it applies, the total amount of advance payments approved, and the date from which individual owners are to begin paying the new monthly amounts. The collection of resolutions and clear documentation ensure that future buyers, advisory board members, and owners can understand the basis for the payments.
In professionally managed homeowners’ associations, this process is part of the annual cycle. Willmann Property Management combines the analysis of property metrics with a personalized assessment: anomalies are not merely recorded, but are examined in the context of the building’s condition, service provider contracts, and the homeowners’ association’s goals.
Why Careful Planning Helps Preserve Value
The budget does not solely determine the amount of the monthly maintenance fee. It influences whether the homeowners’ association can reliably meet its ongoing obligations and maintain the property with a long-term perspective. If maintenance budgets or reserve funds are consistently set too low, necessary expenses are often merely deferred to the future. As a result, larger special assessments usually hit the owners at an inopportune time.
An adequate maintenance reserve is not a freely available cushion for arbitrary expenses. It serves as a financial provision for work on the common property. Whether and when funds from it are used must be decided separately. For planning purposes, this means that foreseeable projects—such as work on the roof, facade, plumbing, or elevator—should be factored into the financial planning at an early stage.
Investors, in particular, benefit from reliable advance payments and transparent explanations. They can better calculate the ongoing expenses for their unit and clearly distinguish between apportionable operating costs and non-apportionable costs for their tenants. Owner-occupiers gain the assurance that the necessary services for the building are financially secured.
Avoiding Common Mistakes in the Business Plan
A common mistake is to rely exclusively on the previous year’s figures. This may work when costs are stable, but it becomes problematic when contracts expire, energy costs fluctuate, or repairs are foreseeable. Equally problematic is allocating funds to the reserve account based solely on the desire to keep the monthly maintenance fee as low as possible.
Mixing up operating expenses, reserves, and major individual projects also regularly leads to misunderstandings. Operating expenses should be included in the regular annual budget. For extraordinary measures required on short notice, however, a separate resolution authorizing a special assessment may be necessary. The appropriate solution depends on the scope, urgency, level of reserves, and liquidity of the homeowners’ association.
Finally, communication must not be neglected. Owners are more likely to accept adjustments if they can see which costs have changed and why. A clear explanation is more than just a service; it creates a solid foundation for decisions and reduces the need for follow-up questions later on.
Differences in Rental Properties and Mixed-Use Buildings
For a single-building rental property, there is no operating budget as defined by the Condominium Act. In such cases, the owner or the property management company plans the property’s income, expenses, and maintenance budgets. Tenants’ advance payments for operating costs are based on the terms of the lease agreement and the operating cost statement, not on a resolution under the WEG.
In mixed-use condominium complexes with both residential and commercial units, planning requirements become more complex. Different floor areas, special technical systems, or varying allocation formulas must be properly taken into account. In these situations in particular, meticulous documentation and a verifiable breakdown of the individual amounts are essential.
A good financial plan does not guarantee absolute cost certainty, as prices, damages, and legal requirements are subject to change. However, it ensures that the homeowners’ association acts proactively rather than merely reacting to bills. Owners should therefore not focus solely on the amount of the maintenance fee, but rather on the quality of the assumptions, the transparency of the figures, and the long-term outlook for their building.
