December 13, 2013 is the big deadline for strata corporations. By that day, all BC strata properties with five or more units must have either:
- completed a common-property depreciation report, or
- voted to waive the requirement under the Strata Property Act
So what exactly does a depreciation report mean if you’re a strata owner? And what are the implications if a report isn’t filed?
To find out, REW.ca interviewed Tony Gioventu, Executive Director of the Condominium Home Owners’ Association of BC. CHOA is a non-profit association that provides advisory services, education, resources, and support for its members and stratas throughout BC.
REW.ca: What is a depreciation report?
TG: The depreciation report is essentially a planning document with a three-year lifespan, where the strata corporation retains a qualified person to:
- Establish an inventory of all common property, common assets and strata property that the strata corporation is obliged to maintain and repair
- Conduct an on-site review of the condition of that property and assets
- Establish the remaining useful life of these components
- Estimate what the projected cost of the renewal or major maintenance will be
- Provide projections for how the strata corporation may consider paying for the future costs
Depreciation reports (also known as reserve fund studies) are critical planning tools for all property owners. They provide us with the resources to create annual inspection and maintenance checklists which are essential for operations and budget planning. And they ensure we repair or replace components before they have failed, causing damages that could have been avoided.
Strata corporations that waive the requirement for the report are required to ratify a three-quarters vote annually at either an Annual or Special General Meeting, and that decision would be recorded in the minutes of the meetings.
REW.ca: Why was this depreciation report law implemented?
TG: We have an unfortunate practice in our industry where strata corporations routinely do not repair building components until they fail—a point well past the time for replacement. Just consider the cost of deferring roof maintenance. If a roof fails, there will be additional costs for damages to the structure and strata lots. And the strata corporation loses their ability to effectively plan for a secure bidding process to ensure the best price for repairs, at the best time and in the best conditions.
Overall, in my experience, deferred maintenance and repairs that result in failures often incur an additional 25–40 per cent of costs that could have been avoided.
The other side of depreciation reports is the purpose of disclosure. Owners will now have a sense of what the future costs will be and when they are likely to occur. Buyers and mortgage providers can both use the information to make decisions in relationship to the risks they are prepared to assume.
REW.ca: Are there still some stratas that haven’t voted yet?
TG: No one knows the numbers, but I would suspect there are a significant number of strata corporations that have done nothing about this requirement. One problem we have is the industry telling people to wait until next year, as the price will come down. I cannot imagine any reason why this is credible, and the unfortunate situation is that the strata corporations waiting will either not be in compliance with the Act or they will waive the requirement by three-quarters vote and end up not being able to provide a depreciation report at a buyer’s request, which is already frustrating sales.
REW.ca: Is December 13, 2013 the deadline to commission a depreciation report or to have one completed?
TG: To have one completed, or to have waived the requirement by a three-quarters vote.
REW.ca: Does strata have to vote on this issue every year?
TG: The waiver requirement is annual; the report has to be updated every three years.
REW.ca: What are the timelines?
TG: If they do not waive the requirement the following year by three-quarters of the votes, then they have six months to obtain a report.
REW.ca: Is there anything owners can do if their strata keeps voting against this?
TG: … If most people showed up at meetings and exercised their voting rights, it is unlikely the waiver would pass. Normally a small majority of owners attend in person or by proxy and tend to control the outcomes.
REW.ca: What documents and records are required?
TG: At a minimum, a strata corporation will need a copy of their registered strata plan, any registered bylaw amendments, and financial statements; however, there are several additional documents needed to accurately produce a depreciation report.
These records include, but are not limited to:
- The approved annual operating budget
- Current balance sheet, including the contingency reserve fund balance and any investments and assets
- General Ledger
- Copies of invoices relevant to operations and repairs
- Current insurance certificate and/or insurance appraisal
- Any reciprocal easements/service agreements/air parcel agreements
- Any leases and licenses (phone systems, parking, garage use, and elevator contracts, for example)
- Any agreements granting third-party use and access of the strata property
- Prints, plans, and drawings for architectural, structural, mechanical, electrical, fire-protection, and other systems
- Any prior investigation reports: maintenance, repair, investigation, etc.
- Annual fire-inspection report
- Maintenance manuals
- Maintenance logs
- Registered strata plan and any amendments
- Registered bylaws and any amendments
- Any bylaws where the strata corporation has taken responsibility for the maintenance and repair of part of a strata lot
- Any information and bylaws relating to sections
- Any registered allocations of Limited Common Property
- Any alteration agreements where an owner has taken responsibility for the cost of the maintenance or renewal of the alteration
- Lawsuits or arbitration decisions that impact property use, maintenance repair, or obligation
For extended information guides on depreciation reports, go to www.choa.bc.ca.