1. BACKGROUND (The 5Ws of Depreciation Reports)
What? On December 13, 2011 the amended Section 94 of the Strata Property Act came into effect. As of that date, the
provision of a Strata Depreciation Report became a duty of the large majority of strata corporations in British
Columbia. Among other things, Reports must cover the following:
✦a list of assets owned (inventory)
✦their condition (evaluation)
✦when things will likely need to be replaced
✦the amount of money the strata currently has (contingency reserve)
✦a description of the factors in projecting costs
✦methods of dealing with the costs (three cash flow models projecting 30 year replacement periods)
✦for the full list see Section 6.2 of the Strata Property Regulations** within the Strata Property Act.
Although Depreciation Reports contain both physical and financial aspects, they are essentially financial
documents intended to create foreseeable budgets to deal with future maintenance.
Where? The Strata Property Act is Provincial legislation. The recent changes are therefore limited to BC
Strata Corporations. Nevertheless, similar legislation exists in Ontario (under the term Reserve Fund Studies),
Alberta and Saskatchewan. Comparable legislation also exists throughout the United States and is being discussed in
other Canadian provinces.
Why? (Motivation behind the legislation) Better consumer protection is the driving force behind the introduction of Strata Depreciation
Reports. Essentially, many strata corporations lack the financial and technical knowledge to properly manage such a valuable asset. Depreciation Reports reduce the chances of ongoing special assessments and their resulting costs, which can be quite onerous for
unit owners. Ultimately, the “surprise” element is removed as the focus shifts to proactive planning instead of reactive
response. In addition to the reduction of unexpected costs, the legislation is motivated by the assumption that reactive repairs cost two to five times more than the equivalent planned and foreseen intervention.
Who? (Exemptions) Strata corporations with four or fewer units are exempt from providing Reports. Also,
Strata corporations may exempt themselves by passing an annual 3⁄4 vote – the key here is that a vote must
take place on a yearly basis. Failing this would require the production of a Report.
When? (What are the dates to remember?) The first deadline to comply with the new provision is December 12, 2013. Subsequently,
Depreciation Reports must be renewed every three years. The Reports must always cover at least 30 years from the filing date. New Reports must still include on-site visual inspections and cover at least 30 years from the new date.
2. POTENTIAL OUTCOMES
Lack of enforcement of Report production may lead to questions concerning damages and who is ultimately liable. Given that buyers will
want to use Depreciation Reports to help judge the fairness of the sale price, what happens when a Report is
absent? Without a Report, will a buyer want to by? Will lenders lend? In another scenario, what happens if the Report is not done appropriately or is done to excess? In some cases the presence of a Report (rather than
absence) might adversely affect the value of the units.
While some purchasers may not be bothered with Reports, it’s important to note that financial institutions may be
reluctant to lend if future costs are unknown.
Although many of these questions remain unanswered, a look at Ontario, where similar legislation has existed for
over 10 years, shows us what we might expect.
Although there has been a simple refusal by certain boards to comply with the law, estimates for the production of
reports range between 60 – 70%. Older corporations were predictably hit hard when the new law was introduced. They
faced repair costs for issues that, in some cases, had been neglected for years. Of no surprise, an important number of condo
owners saw a doubling of their common expense burden. There were even cases where proactive boards were voted out and
replaced by ones in favour of ignoring the Condominium Act.
Regardless of the Act in Ontario, many older condominium corporations in the Greater Toronto Area have continued
to have underfunded reserves. Moreover, certain buildings have required court appointed administrators. Interestingly,
Ontario is currently discussing how to inject standards into its Act – specifically with respect to the method of calculating
reserve funds. This is of interest as the lack of standards in calculations and Report format is a common criticism of the BC
Ontario is also wrestling with the consequences of a lack of oversight of the proper use of reserve funds (for example, a
board using the funds collected after a study for items not included in the study).
Given the similarity of the legislation, these scenarios may soon be played out in BC.
3. ROLE OF HOME INSPECTORS
Although Home Inspectors continue to be limited to inspection of the individual unit, they may offer general
comments regarding common areas that are accessible.
The role of the Home Inspector in this case should be seen more as a “translator” or interpreter rather than a
reviewer. Finally, Home Inspectors may also assist by reading and providing comments to building envelope or building
4. Q & A
The following questions surfaced during several Wolf Pack Home Inspection Presentations on the topic:
✦Who can prepare the Reports?
The regulations provide only general (and somewhat vague) criteria (see Regulation 6.2(6) of the Strata Property
Regulations – link provided below*). Simply stated, a qualified person must be chosen.
Among other things, a qualified person is to have the knowledge and expertise to understand the property and assets the specific Strata Corporation is responsible for repairing under the Act.
✦What about Bare Land Stratas?
Will they need to file a Report? There is no exception for Bare Land Stratas. However, the amount and type of common goods could have an impact on who is qualified to write the Report.
Although the common property inventory contained in a Report may surprise some Bare Land Strata members (as in, more common responsibilities than previously thought), it’s arguable that the
absence of a Report won’t be as
prejudicial as in the case of regular
✦ Do lenders in other jurisdictions require the Reports?
Although the extent to which lenders in other jurisdictions require the Reports is difficult to say, in BC the existence of
Re ports must now be mentioned in the For m B information certificate. Should a Report exist, a copy will be a required
attachment to the Form. It is hard to believe that mortgage lenders will not take this into consideration.
✦ What is the typical cost? As of yet, no typical costs have emerged. Cost vary greatly de pending on age,
location, size, construction style, access to Reports and other documents, whether or not the Report is original or
an update, thoroughness of Reports, and style of Report requested. We have seen reports for 5000$, we have also
seen reports for 20,000$. Given the bottleneck in providing Reports in BC, a shortage in qualified professionals
may have an impact on prices throughout the year. Although it is difficult to foresee a typical cost, most Report providers will provide proposals.
Information from Wolf Pack Home Inspection Specialists
*This fact sheet was prepared using public
domain information. The contents should not
be considered as, or in lieu of, professional
legal advice and contain general information
only. We make no claims to
comprehensiveness or accuracy.