According to a recent CBC News article, 90% of strata contingency funds are too small. This is a shocking fact for many condo owners. Many people buy strata property to meet budget restraints. What they do not expect, is a special assessment that can range anywhere from $5,000 to close to $100,000!
To appreciate the gravity of having a Strata Contingency Fund that is too small, you must first understand the nature of this fund and its intended use. A contingency fund is akin to a rainy-day fund. It is intended to be used to pay for common area expenses that occur less often than once a year or do not usually occur. This could be a repair of a roof, replacement of railings on balconies, carpet replacement in main hallways, a new elevator, etc.
The facts are that most BC strata councils do not collect enough in monthly strata fees to maintain the buildings appropriately. This is especially true when it comes to condos. This underfunding ends up costing the home owners in the long run.
A “special assessment” occurs when the contingency reserve fund for the building is not adequate to cover an unexpected expense, large maintenance or replacement project or other unanticipated cost. This assessment is then levied on each strata property owner, according to their unit entitlement.
Most home buyers have little or no knowledge of how a strata property is managed. They are enticed by “low monthly maintenance fees” and are convinced of the affordability of their choice.
What can you do to protect yourself? Your REALTOR® should request and provide to you:
• A Form B Information Certificate – this contains information about the strata lot including the monthly maintenance fee and if any fees are owed to strata for the unit, the amount available in the Contingency Reserve Fund, any pending litigation or arbitration issues and the use or availability of parking and storage lockers. The Form B should be current; dated within the last 60 days.
• Depreciation Report – this outlines the physical condition of the development as well as a summary of the regular repairs and maintenance along with a financial forecast for anticipated repairs.
• Minutes – 24 months’ (minimum) strata council minutes, annual general meetings (AGM) and special general meetings (SGM).
• Bylaws – a copy of the current bylaws of the strata corporation.
• Financial Statements of the Strata Corporation.
• Registered Strata Plan (and any amendments).
• Warranty information.
It is not sufficient for your agent to just send you the package containing all of this information. Any REALTOR® who is working for you should read through the above information, and help you to understand its significance. Many major issues can be identified by reading through the minutes of the strata council meetings. An issue that is brewing will not have shown up on the “books” but will be evident by reading the minutes.
The moral of this story is to take an active part in the operation of your building. If you do not want to sit on the strata council, and who could blame you, at minimum attend all open strata meetings – especially the AGMs. Do not be seduced by low strata fees, or a suspiciously low sale price for the unit, as you will pay later.
If you are considering buying a strata property, do your homework and make sure the development is well run and has a healthy contingency fund.
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