Strata Tip of the Week – Watch Out for Stratas “Padding” Their Budget

Many strata corporations place a lot of emphasis on keeping strata fees low. While this is often a reasonable goal, it’s important to understand how stratas achieve it and how using existing savings to avoid fee increases can affect owners over the long-term.

What Are Strata Surpluses and Deficits?

A surplus occurs when a strata spends less than it collected in income, such as strata fees or other revenue, during the year. A deficit means the opposite, that the strata spent more than it collected. Because it’s difficult to predict expenses with complete accuracy, small surpluses or deficits are normal and can result from timing differences or changes in costs compared to what the strata originally budgeted for.

Some surplus funds are usually kept in the operating account, often shown on financial statements as “Retained Earnings.” This is not a bad thing, as it ensures the strata has enough cash available to pay its day-to-day bills.

What Can Stratas Do With Surplus Funds?

If a strata ends the year with a surplus, the owners decide what to do with those funds, usually at the annual general meeting (AGM). The main options are to:

1. Leave the surplus in the operating account to maintain a small cash buffer for day-to-day expenses
2. Transfer some or all of the surplus to the contingency reserve fund (CRF) to support future repair and replacement projects
3. Apply the surplus toward the next year’s budget to reduce how much needs to be collected through strata fees

Each of these choices can make sense depending on the circumstances, but it’s important that owners and buyers understand the effect of each one. At Condo Clear, we’ve reviewed thousands of strata corporations across the province and have seen firsthand how different approaches to using surplus funds can impact buyers and owners over time. Our goal is to help people understand what’s really behind the numbers in strata budgets and financial statements so they can make confident, informed decisions. If you’d like help reviewing a strata’s budget or understanding how its finances are structured, please don’t hesitate to reach out.

When Surpluses Are Used to “Pad” the Budget

Applying surplus funds to the next year’s budget helps prevent strata fee increases in the short term but can create financial pressure in the future once those funds run out. This practice often leads to larger fee increases later on. It’s most often a way of deferring strata fee increases rather than avoiding them.

To figure out if a strata has adopted this strategy of “padding the budget,” check the budget for any line items labeled something like:

• Income from Past Fiscal Year
• Previous Year Surplus
• Income Carried Forward

A Simple Way to Think About It

You can think of it like using your own long-term savings to cover your monthly expenses instead of:

• Reducing your expenses (which is often difficult for stratas to do), or
• Increasing your income to pay for everything (which is a more realistic strategy for stratas since owners must contribute enough to properly fund the building’s operations)

This strategy might work for a while, but eventually the savings run out, leaving you with higher costs and fewer reserves.

Using past surplus funds to prevent strata fee increases is ultimately a decision made collectively by the owners. While this might seem like a practical short-term solution, it is rarely sustainable. Once the surplus funds are used up, the strata often has to increase strata fees to meet its true annual expenses, which can result in a sudden spike in fees. When owners and buyers understand this, they can make informed decisions and better plan for the future.

At Condo Clear, we review strata documents every day and share these insights to help buyers and owners feel more confident navigating strata living. Sign up for our Strata Tip of the Week Newsletter to stay up to date with the latest strata news and articles.

That’s it for this week. If you have any suggestions for other topics you’d like us to cover, please let us know at info@condoclear.ca.

Author: Mugurel Mic; Last Edited: October 28, 2025

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