​The benefits of Contingency Planning.

I get it, keeping costs down is a generally a good idea, especially if you are having trouble collecting unpaid communal fees.

But you must be careful not to cut corners or make short term savings that will cost you more in the long term. 

As a apartment building management committee you have a legal responsibility to maintain the building, and failure to do so could cause you problems down the line.  Which is one of the reasons I always recommend committee liability insurance, if you want to know more about this there are some articles on my website CyprusCommunalGuide.com

Anyway, back to cutting costs.

One of the most common mistakes is to cut the maintenance budget or worse, remove it all together to cover a cash shortfall. 

Again before you start shouting at your screen I get it, we live in the real world and if there is no money in the bank, then you have no choice.  And maintenance along with cleaning are usually one of the first things to be sacrificed.

But you know if you don’t keep on top of the small maintenance jobs in your building, many of these small items will worsen over time costing far more to fix later. That couple hour job to fix an external crack can end up in thousands of water damage. So, really you haven’t saved any money there.

What you can end up with a development that looks tired, poorly maintained making it more difficult for your unit owners to find tenants, and can give the building a bad reputation, which is especially damaging if one of the main sources of income for unit owners in your area is holiday rentals. And I have an article all about the importance of online reviews on the website. 

So what’s the end result of cutting costs, owners don’t want to pay their charges and a near derelict site.

So actually, by trying to keep owners payments low, hoping this will increase collections, you can inadvertently make things worse.

If you are already at that stage, there is still hope but it’s going to be a difficult path to recovery.  I do offer assistance in this so feel free to send me an email at info@CyprusCommunalGuide.com or send me a message through facebook.

If you are not there yet, the first defence against this situation is proper budget planning, making sure you have accurate budgets for your expenses and making sure you factor in a budget for bad debt.   I have held entire seminars dedicated to the subject of creating your budget, keep an eye out as I run these quite often.

The second defence is having some contingency in place to cover any expenses outside of your predicted budget.

Budget Contingency, how much to save?

I generally advise my clients to allocate 10% of the total annual predicted budget, as this is usually enough for unexpected maintenance during that year.  

However, if you have a backlog, you may want to first allocate an initial lump sum to clear the backlog, either as part of your normal budget for this year, or as a special project budget.

Again a reminder that there are lots of resource on this subject on the website.

What if you don’t use this contingency?

If you are lucky enough not to need this contingency, then at the end of the financial year you can decide to refund it to unit owners, reallocate it for another project, or carry it over to the next financial year lowering the communal fees.

What you cannot have is a large bank account rolling over year on year which is unallocated. 

The reason for this is there were a couple recent court rulings which went against a couple of committees who were taking debtors to court. 

The court ruled that as the development had large amounts of unallocated cash assets it could not justifiably ask for more money from unit owners for operational expenses. 

While I disagree with this, as its common sense to have some savings for the unexpected, to help with cashflow and cover large future projects it is the courts that have the final say.

A way to avoid this problem in my opinion is have a budget for a specific future expense.  For example, if your building needs a repaint in 5 years, and you think it will cost 10,000 then why not start saving for this now as a repainting fund.  And of course, is something else comes up, and you need to reallocate this money so be it. 

Just make sure you have this budget voted into place at the AGM with a caveat that it can be used for other items in an emergency.

There is no guarantee this won’t have a similar problem, but it gives you a much better fighting chance.