Depreciation Reports provide estimates for the repair and replacement costs of major items in strata complexes. Prior to 2011 it was the option of the strata whether or not to obtain a report, but on December 14, 2011, new legislation came into force that requires strata corporations to have these reports completed.
If you’re considering purchasing in a strata, whether or not that particular strata has completed a report is worth noting. Although the timing of the first report will vary depending on the strata, the deadline is looming for nearly all buildings and the results of the report could have a significant impact on the financial future of the building.
Frequently referred to as reserve fund studies, depreciation reports provide both a physical and financial analysis of the state of a building. The physical component of the report includes information on the building’s structure, exterior, electrical, heating and plumbing systems, windows, decks and patios just to name a few components. The financial analysis must include the anticipated maintenance, repair and replacement costs for common and non-common expenses, a description of how the reserve fund is currently being calculated as well as at least three cash-flow funding models for the contingency reserve fund.
A report could cost anywhere from a few thousand to over ten-thousand dollars, causing some strata corporations to delay this initial outlay of cash.
Strata corporations are able to temporarily delay obtaining depreciation reports via a 3/4 vote at an annual or special general meeting, however the delay is only temporary (usually 18 months). Further, pushing the report back is, unfortunately, only delaying the inevitable as all buildings* will eventually be required to complete the reports and in the long run they will assist in allowing stratas to properly plan for the future. Mortgage lenders, financial institutions and potential purchasers will all have a vested interest in the outcome of the reports and how they will respond to a strata corporation’s reluctance or failure to obtain one cannot yet be predicted.
The best thing you can do as a purchaser, or owner, is be aware that these reports are out there, that they are required by the legislature, and that they can only be avoided temporarily. If you’re considering purchasing in a strata, or if you live in one already, make sure to review your strata docs and speak to your strata council to determine where your building is at in the process.
* these reports are not required for strata corporations with less than five strata lots
This information is general in nature only. You should consult a lawyer before acting on any of this information. This information should not be considered as legal advice. To learn more about your legal needs, please contact our office at (250)448-2637
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