Strata Solutions: How Legal Changes Affect Condo Depreciation Reports and Repairs

FirstService Residential
September 24, 2015

Recent amendments to the Strata Property Act (the “Act”) will make it easier for a strata corporation to repair and maintain their buildings.

The first key legislative amendment changes the voting threshold at a general meeting of owners when funding a depreciation report or approving repairs recommended by a depreciation report from the contingency reserve fund (the CRF). Previously there had to be a three-quarters vote in favour for the resolution to proceed (so even if there was a majority vote, if more than 25 per cent of owners disagreed, the motion could not pass). This has now been changed to a majority vote being sufficient to go ahead.

The second legislative amendment tackles proposed repairs to be funded by special levy, rather than the CRF. A special levy still requires a three-quarters vote to pass. However, new legislation allows a strata corporation to proceed with a court application to obtain an order for repairs in the situation where the three-quarters vote resolution has failed, but more than half of the votes cast were in favour of the resolution. It is important to remember the strata corporation must approve the funding to proceed with court action.

Recent reviews of resolutions approved by strata corporations reveal major flaws that could result in resolutions being struck down if challenged. The consequences could be catastrophic since the resolution forms the foundation for funding repairs, paying contractors and collecting arrears. If the resolution falls, then the owners’ legal obligation to pay also falls. The process could become a house of cards.

How the Law has Changed

As of April 9, 2014, the Act was amended to clarify that the cost of a depreciation report can be an operating expense. This means the cost to obtain a depreciation report may be included in the annual budget. A second amendment was also made that allows the cost to obtain a depreciation report to be paid out of the CRF by a majority vote only.

This creates an exception to the general rule that a three-quarters vote resolution is required to approve expenditures from the CRF. Owners are now permitted to approve funding for repairs, maintenance or replacement recommended in the most recent depreciation report by a majority vote.

To summarize, a strata corporation can now use a majority vote to fund both a depreciation report and the work recommended in the depreciation report from the CRF.

How this Will Affect Strata Practices

It is anticipated that these changes will result in more strata corporations proceeding with depreciation reports and addressing major repair programs in a planned, reasonable and timely fashion.
For special levy resolutions to address maintenance or repairs that have been defeated by the owners at a general meeting, it will now be easier for strata corporations to go to court to get an order for the repairs. However, although it is now easier to proceed to the Supreme Court, many obstacles still remain. This process tends to be political, cumbersome, expensive and uncertain.

The legislation really encourages the use of the CRF as a long-term planning tool, and effectively discourages the use of special levies, which still require a three-quarters vote to pass. Special levies will therefore likely be used less often given the higher voting threshold required for approval. Clearly it is easier to obtain a majority vote approving monies already available in the CRF than it is to approve a special levy.

It is envisioned that more strata corporations will investigate financing options available to them to minimize the burden of a huge repair levy. If the CRF is exhausted or insufficient, owners may view financing as a palatable option in appropriate cases. For example, a repair levy of $50,000 per strata lot, amortized over 15 years, costs about $394 per month (assuming a 5 per cent interest rate). It is easier for some owners to pay $394 per month as opposed to coming up with $50,000 all at once.

One of the objectives should be to ensure that owners do not lose their home if they cannot afford to pay the special levy. When the strata corporation acts as the borrower, it gives everyone a fighting chance by minimizing the owner subsidy if some owners default, ensuring that funding is available to pay the contractor when due and providing those owners who are least able to pay with an opportunity to hold onto their investment.

Cora Wilson is the founder and owner of C.D. Wilson Law Corporation. She is a strata lawyer, educator, publisher, editor and author and has been practicing strata law for more than 20 years.

FirstService Residential
FirstService Residential in British Columbia is a subsidiary of FirstService Corporation, a global leader in the rapidly growing real estate services sector, one of the largest markets in the world. As the leading property management company in North America, FirstService Residential oversees more than 6,500 residential and commercial associations including 1.5 million residential units and over 50 million square feet of commercial space across three provinces in Canada and 21 U.S. states. The company has more than 12,000 employees driving local market expertise and manages in excess of $6 billion in annual budgets.