Impact of Depreciation Reports for Strata Properties in British Columbia
by Ron Neal
on Tuesday, March 11th, 2014 at 1:13pm.
On December 13, 2011 through order in council, the government of British Columbia created an important new regulation related to depreciation reports, affecting all strata corps in B.C. with at least 5 units or more. There are more than 500,000 strata property owners in BC in about 29,000 strata corps. This new rule required all stratas formed on or before then to either complete a Depreciation Report by Dec. 13, 2013, or to opt out with a 75 per cent or more vote of owners, at either a special general meeting or AGM. Newer strata corporations will have until six months after their newly formed strata's second AGM. In my view this was an excellent move for consumer protection.
What exactly is a depreciation report you may ask? Simply stated, a depreciation report is a study which determines the long term funding needs of a strata corporation, related to the common components of the property which are a) the responsibility of the strata corporation to maintain or repair, and b) which require repairs and maintenance work less often than annually. The legislation further defines the requirements for the preparation of depreciation reports in Part 6.2 of the Strata Property Regulation. These reports not only show problems the building will have, but also present options and budgets for how strata councils will deal with these problems.
Costing several thousand dollars, these extensive reports are a bit pricey, especially for smaller stratas on a per unit basis. Consequently, some strata councils approved and moved forward immediately, most voted to have them completed but left them until the last moment. There are a few that have voted to not complete the reports, which is already proving problematic because both prospective buyers and their lenders want to see them.
The reports themselves are very extensive, detailing system replacements and budgeting for decades in a manner not typically undertaken by most stratas in the past. The resulting reports quantify current deferred maintenance and forecast replacement and repair needs assistance in helping create realistic financially responsible budgets. The resulting reports I’ve seen range from a clean bill of health verifying the strata has been well looked after, to financially disastrous for a few older buildings. In some cases exposing significant deferred maintenance costs therefore resulting in hefty catch up costs immediately due in addition to bumping up the monthly fees. In some cases more than doubling monthly fees.
Effective December 2013 there is also new legislation to apply to provincial court with a simple majority if unsuccessful with getting a 75% vote to compel a strata to engage in certain critical repairs necessary to ensure safety and prevent significant loss or damage as if the strata owners had passed a resolution approving a special levy.
The results for the strata property purchaser are that you now can purchase with much more peace of mind and lower risk than previously and not be misled by a seemingly lower cost entry to an older condo with lower monthly fees, only to get a surprise after you move in. Some primary lenders are now refusing new mortgage financing on stratas without completed depreciation reports. This could result in some bargain purchases for cash buyers who are open to a roll of the dice. Ultimately most stratas will be driven by the market to complete them eventually.
The Neal Estate Team is your #1 source for all of your Victoria BC real estate needs. Get in touch with us online or by phone at (250) 386-8181 to speak with a Victoria real estate buying or selling expert today. With decades of experience as a top selling Victoria REALTOR® and ranked in top 1% globally with over 4,000 transactions and $1 Billion SOLD, Ron Neal & The Neal Estate Team have the industry experience and market knowledge to help you make smart and informed buying or selling decisions.