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🇦🇷 Argentina /Economy & Trade

Expense cushions: What they are, how they work and why more building associations are demanding them

From La Nación · () Spanish

Translated from Spanish and summarized by DistantNews. Read the original for the full story.

At a glance

Explainer Named sources Context piece
  • An “expense cushion” is an informal reserve that building associations accumulate to cover foreseeable future projects and maintain liquidity when payments or service costs fluctuate.
  • Lawyers distinguish it from the legally recognized reserve fund, which covers larger unforeseen expenses and generally requires approval from the owners’ assembly.
  • The money must have a defined purpose, remain separately identified and appear clearly in the financial information provided to owners.

The phrase “expense cushion” was unfamiliar to many apartment owners until recently, but it is increasingly appearing in the accounts of building associations. The idea is simple: accumulate money in the association’s account so the administrator can respond to foreseeable future costs.

Enrique Abatti, a specialist in business law and president of Argentina’s Chamber of Property Owners, described it as “a reserve of money that accumulates in the association’s account and is managed by the administration to respond to foreseeable future expenses.” He cited projects such as replacing elevators or redecorating a building’s entrance hall.

A reserve of money that accumulates in the association’s account and is managed by the administration to respond to foreseeable future expenses.

· Enrique AbattiHe defined the informal expense cushion and gave future building projects as examples.

Diego Espada, co-founder of the expense-management platform Octavo Piso, said the cushion also serves a financial and operational purpose. It provides liquidity when owners fall behind on payments or utility and service costs rise.

Its function is mainly financial and operational: to provide liquidity in the face of late payments and increases in service costs.

· Diego EspadaHe explained the cushion’s role in managing cash flow.

But the cushion should not be confused with a reserve fund. Abatti said the expense cushion is an informal arrangement, while the reserve fund is a formal legal mechanism recognized in current legislation and included in most horizontal-property regulations. Reserve funds cover larger, unexpected expenses, usually after authorization by the owners’ council. An expense cushion instead supports a planned project or helps the association manage predictable operational difficulties.

Both arrangements require a decision by the owners’ assembly if the administration is to collect them through extraordinary charges for a defined purpose. Administrators cannot unilaterally add items such as an “operating fund” or “provision” to monthly expenses. Espada also stressed that the money must be properly identified, recorded and disclosed to owners, rather than treated as freely available funds. Without such a financial buffer, even a small leak, pump problem or maintenance failure can quickly become a major emergency for the association.

The main risk is that any relatively small deviation can quickly turn into a financial emergency.

· Diego EspadaHe described the danger of operating without a financial buffer.
About this summary

Originally published by La Nación in Spanish. Translated, summarized, and contextualized automatically by DistantNews, with a note on how the source frames the story. Not individually reviewed before publishing. How this works.

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