During that exciting and nervous time between acceptance of your Offer and Final Subject Removal Day, you often have lots to do and lots of information to read.
When buying a Strata Property you often receive a giant package of information with Strata Minutes, a Form B with Financial information, By-Laws, Rules and a Depreciation Report.
The Depreciation Report is usually quite lengthy and can look a little overwhelming.
In this blog post, I want to give you a quick overview of what it is about and why it is so important to read it.
What is a Strata Depreciation Report?
Think of it as a 30-year Cashflow Forecast for the Common Property in a Condominium or Townhome complex. This typically includes the Buildings, Roads, Landscaping and Recreational Facilities.
It is a very useful document for a Strata Corporation, current Home Owner and a prospective Home Owner to see what capital expenses are coming up and whether there are sufficient funds in the Contingency Reserve Fund to cover them or are increased Strata Fees and Special Levies on the horizon.
Who may prepare a Depreciation Report?
Under the BC Strata Property Act, this should be completed by a 'qualified' person. This person needs to be able to understand the scope and complexity of Common Property, provide Financial Forecasting & understand Strata By-Laws & Agreements.
Why were they introduced?
To increase Consumer Protection, & provide legislation to assist Strata Corporations to become more aware of potential current & future Contingency Reserve Fund deficits, which could result in large unexpected Special Levies to Owners.
How regularly should these Reports be undertaken?
Every 3 years.
Does a Strata Corporation have to undertake a Depreciation Report?
No, they can opt-out by having the Owners Vote at an SGM or AGM.
What should the Depreciation Report include?
A list of reserve components, the age, condition & life expectancy of these components, together with the current & future replacement costs.
This will then determine the full potential replacement cost and the current deficiency levels in the Contingency Reserve fund balance if any.
It should provide 3 or more funding options, for the Strata to consider over a 30 year period.
Is the Strata Corporation / Strata Council under any obligation to act on this report?
No, it is not.
What questions should you ask yourself about the way a Strata Corporation plans its funding?
- Is the Strata Corporation following one of the suggested funding models?
- Does the Strata Corporation appear to be pro-active by discussing upcoming major capital expenses, or is there a risk of future Special Assessments just to keep current Strata Fees low?
Are there any items to look out for that we might miss?
- In a Bare Land Strata is it the Strata's responsibility to replace Fire Hydrants? These can be an expensive item.
- Courtyards & Parking areas - are they in a good state of repair? These can represent some of the highest repair costs.
Why is it important to review the Strata By-Laws as well as the Depreciation Report?
It will help you determine what is your responsibility to repair & what is the responsibility of the Strata Corporation. E.G. Windows & Doors.
What are the 3 types of Funding Models?
Fully Funded Model- balances the required funds, as shown in the budget with the funds actually in the Contingency Reserve Fund.
Adequate Funding Model - provides a proportion of the funds needed and gives adequate notice of potential future contribution increases and/or special levies.
Minimum Funding Model - is the minimum legislated funding required and major expenditure is typically funded by Special Levies.
PLEASE NOTE This blog post is designed to provide you with the very basics of understanding a Depreciation Report, and some potential 'red flags' for you to consider. It does not replace the need for you to seek expert professional advice if needed when purchasing a Strata Property.
Additional Web Resouces -:
CHOA - Condominium Home Owners Association of BC https://www.choa.bc.ca/