Lets talk about Depreciation Reports!
First, I just want to say that I love these reports! They give a buyer an excellent idea of what is going on in the strata complex and the anticipated maintenance, repair and replacement costs projected over 30 years!
Depreciation reports came into effect December 14, 2011. Strata Corporations need to obtain these reports every 3 years unless they hold an annual meeting and 3/4 of the owners vote to waive the report, or unless there is 4 or fewer strata lots. Once a strata corporation obtains a report they have 3 years to obtain a new report.
This Depreciation Report includes a number of different parts to help the Strata Corporation manage their complex, and to help owners understand the true long term cost of ownership. The Depreciation Report includes:
- an inventory of the common property components;
- an opinion of budgets for CRF (Contingency Reserv Funds) projects related to these components;
- an estimated time frame for when we expect those repair/replacement costs to occur;
- the cycle at which we expect those costs to reoccur; and
- funding scenarios to help the Strata decide on how they are going to fund the CRF projects.
Every year the Strata Council puts together a budget that lays out contributions to your Contingency Reserve Fund and your Operating Fund. These two contributions are typically what make up your maintenance fees.
The Strata Property Act defines the CRF as a fund for common expenses that usually occur less often than once a year or that do not usually occur, relating to the common property or common assets of the Strata Corporation.
Before Depreciation Reports were required, many Stratas were not following a long term repair and renewal plan, resulting in poorly maintained buildings. Without such a plan, many Owners did not fully understand the true cost of repairing and maintaining a building.
Stratas were making minimum CRF contributions towards the repair of the complex, and as the buildings aged, owners were facing large special levies as there were insufficient funds in the CRF to cover the cost of these expenditures.
Depreciation Reports cover the CRF related expenditures (e.g., replacing windows, replacing roofs, etc.), and not the day-to-day expenditures that are dealt with through the Operating Fund (e.g., janitorial cleaning, common area hydro fees, common property insurance fees, etc.). Most reports give buyers a very clear idea of how the strata is running and what the upcoming expenses are.
These reports have really identified that many, if not most strata complexes are underfunded!
When I work with a client that is buying into a strata complex, no matter how well the complex is maintained, I always recommend opening an extra bank account for "upcoming levies" and saving money each month. Owning a condo, townhome or bareland strata home is no different than owning a house. There WILL be upcoming work such as roof, siding, decks, gutters and home interior (common property) upgrades that will be needed and you won't be caught off guard having to come up with the money, if you're prepared.....