As a member of a homeowners' association (WEG), you are part of a community that is jointly responsible for maintaining and increasing the value of a property. A central component of this shared responsibility is the financial plan. This article explains what you should know about the financial plan.
The business plan: The financial foundation of your WEGLink to this section
The budget is nothing more than your financial compass for the coming fiscal year. It provides a detailed forecast of all expected income and expenses for the community. The budget primarily serves to maintain and increase the value of your property. Careful planning of expenses for maintenance, repairs, and modernization ensures that your property retains its value and, ideally, even increases it.
In addition, the business plan serves as an indicator of the community's financial situation and is an important basis for decision-making for both existing and potential owners.
Through forward-looking planning, the business plan contributes to risk minimization and protects owners from losses in value that could arise from financial constraints or insolvency of the condominium association. The functions of the business plan are:
Financial perspective: The financial plan forecasts the expected income and expenditure of the WEG for the next financial year.Liquidity assurance: He ensures that sufficient funds are available for the management of the common property.Cost distribution: The business plan determines how much each owner can contribute in the form of House fee must contribute to the community.
Creating a business plan is mandatoryLink to this section
Does your homeowners association need to have a business plan drawn up? The answer is clear: Yes. The legal obligation to do so arises from Section 28 of the German Condominium Act ( WEG Act The business plan is not only important for the financial stability of the homeowners' association, but is also required by law.
If no new business plan is available for a new fiscal year, the validity of the existing plan can generally be extended. This can be done either through an explicit agreement on a longer period of validity or through a so-called continuation clause.
If there is no current business plan at all, the most recently adopted business plan remains valid until a new one is adopted. However, the indefinite continuation of an old plan is not legally permissible.
The financial plan of your WEG - property management is responsible for the preparationLink to this section
As a member of your homeowners' association, you are confronted with the budget every year. But who actually creates this important financial roadmap? The primary responsibility lies with your property management company:
Legal obligation:The property management is required by law to prepare the business plan.Expertise:Professional administrations have an overview of ongoing costs and planned maintenance measures, experience from previous years and a network of service providers for current cost estimates.Cooperation:The preparation is often done in consultation with the administrative board, a body of owners that supports and monitors the manager.Transparency is mandatory:The financial plan must be clear and understandable so that you as the owner can understand the financial situation of the condominium association.Approval process: The completed business plan will be presented to you for a vote and must be approved by the majority of the owners.
What you should pay attention to:
Realistic planning:A good manager takes into account factors such as inflation and long-term investments.Balanced house money:Is the house moneyset too low? Then there is a risk of financing problems in the event of unexpected expenses. Is the maintenance fee set too high? This could lead to discontent and mistrust within the homeowners' association.come.
Tip:A carefully prepared financial plan is the foundation for a stable financial future for your condominium association. Don't be afraid to ask questions at the owners' meeting and actively participate in the process.
The business plan includes a list of all income and expenditureLink to this section
The financial plan gives you an overview of all planned, anticipated income and expenses of your homeowners association.
revenueare all funds that accrue to the homeowners' association and that can reduce the owners' monthly payments. These include, for example:
House fee:The regular payments made by the owners.Rental income:If the community rents out parts of the common property.Other income:These include, for example, proceeds from the sale of scrap metal or donations.
expenditureare all costs that the homeowners' association has to bear during the financial year. Typical costs include:
Administrative costs:Fees for the administration of the condominium by a property management company.Maintenance:Costs for repairs, renovations and renewals of common property.Operating costs:Expenses for heating, water, electricity, garbage disposal, cleaning and garden maintenance.Insurance:Contributions for building and liability insurance.Reserves:Part of the income is set aside for larger purchases or unexpected costs.
The financial plan helps you, as owners, to see transparently what your money is being used for and how the finances of the homeowners association are developing.
The decision on the business plan: A guide for your WEGLink to this section
The economic plan is revised every year in the Owners' meeting To ensure that all owners are involved in this important decision-making process, the adoption of the business plan follows a clearly structured process:
Annual rhythm and preparation:The budget is usually drawn up once a year and approved by the community. It is usually valid for one fiscal year. The administrators are responsible for preparing the budget and informing the condominium owners in a timely manner. All owners receive the budget along with the invitation to the owners' meeting.
Announcement and transparency:To ensure that all condominium owners have the opportunity to familiarize themselves with the budget and clarify their questions, it must be included as a fixed agenda item in the invitation to the owners' meeting. Passing a resolution without prior notice is legally inadmissible.
Procedure of the owners’ meeting:During the meeting, the budget is usually presented by the property management or a representative. Afterwards, everyone present has the opportunity to ask questions, express their opinions, and, if necessary, propose amendments. The final decision on the budget is then made by vote. This can be conducted in writing, verbally, or digitally. A simple majority of votes is usually sufficient to pass a resolution. However, different provisions may be stipulated in the declaration of division.
Commitment and confirmation:Once successfully passed, the approved budget becomes effective for the next financial period. To confirm the validity of the resolution, it is usually signed by the administrative board or the entire community.
The legal basis is the Condominium Act (WEG)Link to this section
The legal basis for a condominium association's financial plan is the German Condominium Act (WEG). In particular, Section 28 Paragraph 1 of the WEG requires the management to prepare a financial plan annually. This is the only way to fulfill the function of transparently monitoring and planning the community's finances.
Creation by the property management
Section 28, Paragraph 1 of the Condominium Act (WEG) stipulates that the condominium administration must prepare a budget for each calendar year. According to Section 28, Paragraph 2 of the WEG, a reconciliation between the actual costs and the budget is required at the end of each year. For this purpose, the administration prepares a detailed annual statement listing all actual income and expenses, which is submitted to all condominium owners for review. Based on this statement, additional payments can be requested if necessary, or advances for the coming fiscal year can be adjusted.
Examination by the Administrative Board
According to Section 29, Paragraph 2 of the Condominium Act (WEG), the condominium association is responsible for adopting the budget. In this context, the administrative advisory board is obligated to thoroughly review the documents prepared by the administration—both the budget and the annual financial statements—and to comment on them.
The advisory board ensures that your interests as an owner are protected. It reviews whether the budget is realistic and whether the costs are reasonable. It can also help you better understand the complex interrelationships within the budget. After this process, you, as an owner, can vote on the budget at the owners' meeting.
This highlights the close connection between your condominium association's budget for the upcoming fiscal year and the annual financial statements for the previous period. It is advisable for all co-owners to critically examine and carefully examine any significant deviations in the cost estimates—whether upward or downward—compared to the previous year.
The individual economic planLink to this section
In addition to the overall financial plan for the entire homeowners' association, the property management company prepares an individual financial plan for each co-owner. This system allows owners to have a clearer overview of their financial obligations. The individual financial plan, as part of the homeowners' association management, serves several purposes:
Monthly maintenance fee:The plan shows you, as a homeowner, exactly how much you have to pay monthly as maintenance fees.Focus on shared ownershipPlease note that the individual budget relates exclusively to payments for the shared property. Costs for your private apartment or the management of the separate property are not included.Transparent distribution key: The plan reveals how the costs of the common property are distributed among the individual apartment owners. This key is usually based on the co-ownership share (MEA), which is specified in the community regulations or declaration of division.
The individual financial plan is your personal financial compass within the condominium association. It provides clarity about your obligations and helps you track and plan your expenses for the shared property. The combination of overall and individual financial plans in a condominium association serves to ensure a high degree of transparency and fairness in all financial matters.
Tip:If you, as a co-owner of a condominium association, want to estimate your monthly costs, you can use a rule of thumb: The maintenance fee is typically about 20 to 30 percent higher than the monthly utility costs of a comparable apartment. This difference is mainly due to additional expenses that are not incurred in rental apartments, such as property management and maintenance costs.
Please also note that in addition to the maintenance fee, you will have other financial obligations. One significant item is property tax, which must be paid separately and is not included in the maintenance fee or the budget.
More tips? In this blog article, we answer the question of whether the maintenance fee is apportionable.
Budget plan vs. annual statement: The difference for homeownersLink to this section
Two central financial documents play a crucial role in your homeowners' association: the budget and the annual financial statement. Both are closely linked and together provide a comprehensive overview of your association's financial situation. We would be happy to explain the difference between the budget and the annual financial statement:
The economic plan: A look into the future
The business plan is essentially the budget of a condominium association. It is usually prepared at the beginning of each year and provides a forecast of expected income and expenses for the coming calendar year. The business plan serves as the basis for determining the monthly maintenance fee payments to be made by the owners.
Purpose:Financial planning for the coming year.Timeframe:Refers to the coming year.Contents:Projected income (e.g., maintenance payments) and expenses (e.g., maintenance costs, insurance).Creation:By the administrator before the start of the planning period.Permit:Must be decided by the community at an owners’ meeting.
The annual statement: A look back
In contrast to the financial plan, which is forward-looking, the annual statement summarizes the actual financial transactions of the past year. It represents a kind of "invoice" that lists the financial activities of the condominium association in detail.
Purpose:Documentation of actual financial activities.Timeframe:Refers to the previous financial year.Contents:Real income and expenditure, as well as a comparison with the business plan.Creation:After the administration has closed the financial year.Meaning:Enables a precise analysis of the financial situation and shows possible deviations between planning and reality.
The connection between the business plan and the annual financial statements
The business plan and the annual financial statements form a cycle. The insights from the annual financial statements are incorporated into the creation of the new business plan. This allows potential errors or unforeseen events to be taken into account to create a more accurate forecast for the coming financial year. Both the business plan and the annual financial statements are essential for the stability of the condominium association.
Challenges in preparing the economic planLink to this section
Creating a financial plan for your homeowners' association can present various challenges. Here's an overview of potential problems:
A common problem istime delaysAlthough there is no legally prescribed deadline for submission, owners generally expect the budget to be submitted on time, often in the first few months of the year. You may already know this from your own experience: Delays can lead to dissatisfaction and disagreements between your condominium association and the property management company.Another difficulty lies inincomplete information. The lack of reliable data on past revenues and expenditures makes realistic planning for the future difficult. Experienced administrations such as Ralph the advantage because we can draw on comparative values.Unpredictable cost developmentsalso pose a challenge. Fluctuating expenses for maintenance, repairs and operating costs make accurate forecasts difficult.Lack of transparencycan undermine the condominium association's trust in the property management company. A detailed breakdown of all costs and their use is therefore extremely important.Especially in larger WEGs,Disagreementsabout the necessity of certain expenditures may delay the process of preparing the economic plan.The Creation of reservesis another point of contention. Establishing appropriate reserves for future measures can lead to conflict.Unrealistic approachesin planning, whether too optimistic or too pessimistic, can result in financial difficulties.
Our tip:Digital solutions can help address these challenges by accelerating processes and increasing transparency.
Careful, transparent, and realistic planning is key to avoiding these problems. A modern administration with experience and the latest technology can play a crucial role in this. Do you already know Ralph? Through close cooperation with the owners and open communication, we have been able to overcome many challenges.
Errors in the business plan – What you can doLink to this section
A faulty financial plan in your homeowners association could have negative consequences. For example, inaccurate calculations of maintenance fee payments can lead to financial bottlenecks, while insufficient reserves can result in unexpected special assessments. These additional costs can overwhelm individual owners financially and become a burden.
Furthermore, a faulty business plan poses legal risks, especially if damages arise due to incorrect calculations. These errors can permanently damage trust in the administrator and the community.
To avoid such scenarios, it is important to carefully and precisely prepare a financial plan. Regular reviews by the administrator and transparent communication within the condominium association can help identify and correct sources of error early on. An accurate and reliable financial plan is therefore the foundation for smooth coexistence and cooperation within your condominium association and creates financial security for all involved.
Do you already know Ralph?
At Ralph, we're more than just a property management company. Our experienced experts support you with a transparent financial plan and many other matters that arise within your condominium association. From conducting owners' meetings to enforcing resolutions – we're always at your side. Switch to Ralph now.
