Annual budget for the homeowners' community: step-by-step guide to approving it without conflicts

The annual budget for the homeowners’ community: the year’s most important decision

The annual budget for the homeowners’ community is much more than an accounting document. It’s the instrument that determines how much each owner pays, what the communal funds are spent on, whether the community can meet urgent repairs and whether the administrator has the resources to maintain the building in good condition over the next twelve months.

However, the preparation and approval of the budget is also one of the most tense moments in the relationship between administrator, board of directors and owners. A poorly explained budget, with a fee increase lacking apparent justification, can generate conflicts that take years to resolve.

This guide gives you the complete process: from data collection to approval at the meeting, including how to present it so that the community understands and approves it without unnecessary resistance.

Legal framework: when and how the budget must be approved

The Horizontal Property Act (LPH), specifically its article 16, establishes that the owners’ meeting must convene at least once a year to approve, amongst other matters, the budget for expenditure and income for the following year.

Key legal aspects that the administrator must have under control:

• Notice with a minimum of 6 days’ advance: article 16 of the LPH establishes a minimum period of six calendar days’ notice for convening the ordinary meeting. Sending the documentation 7-10 days in advance is recommended practice so that owners arrive at the meeting with an informed opinion.
• The budget must be on the agenda: if it’s not explicitly listed, agreements relating to it may be challenged.
• Majority for approval: the ordinary budget is approved by simple majority of the owners present and represented who, in turn, represent the majority of participation quotas.
• Extraordinary assessments have their own requirements: depending on the amount and nature of the works, they may require qualified majorities (3/5 or unanimity).

Step 1: analysis of the closing year

The starting point for any budget is to understand thoroughly what has happened in the current year. Before beginning to prepare next year’s budget, the administrator must compile:

• Settlement of the current budget: actual expenditure vs. forecast expenditure. Where has the community deviated and why?
• State of the treasury: current balance, outstanding receipts to be collected, outstanding invoices to be paid.
• State of the reserve fund: is it at the 10% minimum level? Was part of it used during the year?
• Incidents and repairs during the year: were there unforeseen urgent expenses? Are there deferred repairs that will need to be undertaken next year?

Step 2: identify fixed costs for the coming year

Fixed costs are those which the community has committed to regardless of what it decides at the meeting: maintenance contracts, utilities, insurance, administrator’s fees. For each one, the administrator must:

• Review current contracts: are there price revision clauses? Have contractual revisions been applied?
• Request alternative quotes where appropriate (lift, cleaning, gardening): long-term contracts may have become outdated compared to the market.
• Verify that insurance adequately covers the building’s value: underinsurance is a real risk.

Typical fixed items in a standard community

Step 3: estimate variable costs and preventive maintenance

This is the most delicate part of the budget. Variable costs (repairs, material replacement, one-off services) are those that generate the most uncertainty and have the greatest risk of deviation.

Best practice is to use the history of the last 3 years to calculate a realistic average, then apply a 10-15% margin for contingencies. If there are old installations (lift, boiler, roof) known to be reaching the end of their useful life, the administrator must reflect this with a specific item.

Step 4: allocation to the reserve fund

After calculating ordinary expenditure, it’s necessary to ensure that the budget includes the allocation needed to maintain the reserve fund at the minimum of 10% of the total ordinary budget, as required by the LPH.

If the fund is below the minimum (due to being used in the previous year), the meeting must approve an extraordinary allocation to replenish it.

Step 5: calculate the resulting community fee

Once all expenditure is added up, the total budget is obtained. This total is distributed amongst the owners according to their participation coefficients (defined in the constitutive title or in the community statutes). The monthly fee for each owner is their coefficient multiplied by the annual total, divided by 12.

Simplified example: total annual budget of €60,000. An owner with a coefficient of 8% pays €4,800 annually, or €400 per month.

How to present the budget so that the meeting approves it without a battle

A perfectly prepared budget can generate unnecessary conflict if presented poorly. And a budget with a fee increase can be approved without resistance if the communication is correct. These are the keys:

Send the budget with sufficient advance notice

Sending the budget two days before the meeting guarantees that owners will arrive without having read it and with last-minute questions that lengthen the meeting. Sending it 7-10 days in advance, with a clear explanatory note, allows owners to read it at their leisure and arrive at the meeting with specific and constructive queries.

Explain the variations, not just the numbers

If the fee increases, owners want to know why. «The budget increases by 8% compared to the previous year due to a 12% increase in cleaning costs, renewal of the lift maintenance contract and the extraordinary allocation to the reserve fund to partially finance the façade refurbishment planned for next year.» This is understood and accepted. «The budget is €60,000» is neither understood nor accepted.

Use visual comparisons

A table comparing the previous year’s budget with next year’s, item by item, is far more effective than a list of numbers. The owner can see at a glance where the increase is and can ask informed questions.

Separate the ordinary budget from assessments

Presenting the ordinary budget and possible assessments clearly and separately avoids confusion. Many conflicts at budget meetings arise because owners confuse what is ordinary expenditure (necessary for the building’s operation) with what is an assessment (extraordinary investment that could, in principle, be questioned).

Budget management after approval

The approval of the budget at the meeting is not the end of the process: it’s the beginning. During the year, the administrator must:

• Carry out monthly monitoring of budget execution: actual expenditure vs. forecast.
• Inform the board of directors (president and members) of significant deviations.
• Actively manage the reserve fund: any disbursement must be documented and communicated.
• Prepare the settlement report for the year to be presented at the next ordinary meeting.

Administrators working with a digital management system can generate these monitoring reports automatically, without having to manually consolidate data from multiple sources.

You may also be interested in

• Reserve fund: how to calculate it and avoid penalties
• Defaulters in the community: step-by-step collection strategy
• Request a free Fixr demo

Reference source: Ley de Propiedad Horizontal, Art. 16 (ordinary meeting and budget)

Conclusion: the budget is a tool for trust, not just control

A well-prepared, well-presented and well-executed budget is one of the best tools the administrator has for building trust with the community. Owners who understand how their money is spent and who see that the administrator carries out rigorous monitoring of expenditure are owners who renew their trust year after year.

Fixr allows you to manage the budget for all your communities from a single dashboard, with real-time monitoring of execution, deviation alerts and automatic report generation. Request a free demo and we’ll show you how it works adapted to the size of your portfolio.