August 22, 2014

Protecting an investment – The Depreciation Report

This report gives stratas the ability to plan ahead for maintenance and replacement costs

by Anne McMullin

A depreciation report is an important tool that helps protect a home’s value, and is now required for most strata corporations. The report, or “reserve fund study,” helps stratas plan for the maintenance and replacement costs over a 30-year period, providing more certainty on costs for potential condo buyers and existing homeowners. Along with a physical inventory of common property and an evaluation of building systems, the report includes financial forecasting and funding models for contingency reserve funds.

As of Dec. 14, 2013, all strata corporations are required to have a depreciation report in place and to obtain one every three years (unless they have fewer than five units, or hold an annual 75 per cent vote to waive the requirement). For strata corporations formed after Dec. 14, 2011, a depreciation report is necessary to be in place six months after the second AGM.

This relatively new requirement ensures that stratas are better prepared and able to gather funds in advance of anticipated renewals and building system upgrades. Certainly, strata corporations for buildings that are older and no longer under warranty should strongly consider voting in favour of the report. Tony Gioventu, executive director of the Condominium Homeowners Association of BC, estimates that while only about 30 to 50 per cent of strata corporations have actually commissioned a report so far, he predicts this type of report is setting the standard for both prospective homebuyers and homeowners.

“Homebuyers are able to request the depreciation report so they know beforehand how future maintenance is funded,” says Gioventu. “In addition, banks and insurers may use the report as a way to assess risk.” Meanwhile, homeowners are apprised of upcoming maintenance via the report, and can avoid surprise costs, special assessments and high borrowing fees. Buildings without a report may be faced with more stringent terms and fees. Given the depreciation report’s advantages, an absence of a report may raise suspicion, make a condo unit more difficult to sell, and even negatively affect a property’s value.

The cost of a depreciation report ranges due to a number of factors, including the size of both the strata corporation and the development, as well as the rate for the qualified professional (most often an engineer or architect) hired to complete the study. The total costs, however, are offset by the significance of the report – it may even cost more to not complete one. A depreciation report provides strata corporations with the information required to plan ahead and protect their investment.

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