Depreciation Reports – Our Position

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Most strata council members are now familiar with the legislated requirement (Section 94 of the Strata Property Act (SPA)) that, with a few exceptions which do not apply to any Stratawest clients, every strata corporation in British Columbia must conduct a Depreciation Report by December 2013. For those that do not have a clear idea of what a Depreciation Report is or that simply want a refresher, you can link to the summary of Stratawest Management’s June 2012 Depreciation Report Seminar at:

https://www.stratawest.com/wp-content/uploads/2012/12/drsc.pdf.

The summary provides some commentary and related information, including an excellent primer from the Condominium Home Owners Association (CHOA) which we encourage you to review at:

http://www.choa.bc.ca/_members/_pdf/400/400-007_Depreciation_reports_2011.pdf

Many owners and council members ask us what we think as a strata management company about this requirement.  As we note in the Depreciation Report Seminar summary cover page, while there are arguments to be made for and against commissioning a Depreciation Report, Stratawest is of the opinion that the Bill 8 Strata Property Act amendments related to Depreciation Report requirements are a good thing for the industry and for maintaining the value and marketability of your home. In short, with few exceptions, we think it is an excellent tool for strata corporations and we encourage just about all of our clients to arrange for one to be prepared for them. Some of our reasoning includes:

–          It will make the long term planning for your building much easier, especially for lay people who do not have any familiarity with capital planning, replacement costs or the complex nature of most multi-residential buildings. New council members can certainly benefit from having this information available to them.

–          The report is an excellent resource for information about the physical components of your building.  Think of it as an encyclopedia of all of the pieces that make up your home. A full and detailed list of components is included in a Depreciation Report, from the roof to the foundation and everything in between.  Just about every minor detail would be covered in a good Depreciation Report, even items as small as light fixtures and furniture in common areas.  The ability to quickly look up what type of boiler you have, the traffic coating in your parkade, or the composition of your wall cladding can be indispensable.

–          The experience of other jurisdictions which are ahead of B.C. in this field suggests that eventually just about all strata corporations will conduct a Depreciation Report.

–          Anecdotal evidence from realtors and bankers has already suggested that savvy buyers are looking for buildings with Depreciation Reports, well-funded reserves, and evidence that the strata corporation is enacting a plan to deal with the long term costs of maintaining their building.  We do not profess to be experts in the real estate market, and encourage you to talk to a realtor or your home lender to see what they have to say about the subject.

There are many counter arguments to each of these points, and others that we typically hear at general meetings when the subject is raised.  Though we can’t address all of them here, some of the points that we often hear raised are:

–          If we have a report prepared, and don’t follow it, we could be liable to future owners for failing to maintain the building.  Our response is that by failing to maintain your building, strata corporations are already incurring liability.  At least with the Depreciation Report, you will have a guide for the work which will eventually be required.

–          The legislation doesn’t require us to actually follow one of the plans in the report, and is toothless which makes the document worthless.  We respectfully disagree with this point as well.  Though many believe it would be ideal if B.C. had followed other jurisdictions lead in requiring owners to increase their Reserve Funds to meet the proposed funding methods in a Depreciation Report, the fact of the matter is that this isn’t required (yet).  Still, with the report in hand you will at least know what expenses are inevitably going to be required. Even if you decide as a community to pay them at the time they come due (ie. special levies) rather than save for them, you are choosing rather than avoiding the option to choose by not getting the information you need to make an informed decision.

–          Depreciation Reports are expensive.  This is true.  However, we believe there is great value in the information contained in the report which (if not ignored) will save your strata corporation a great deal of money down the road.  Through proactive planning, rather than reactive spending, costs should be reduced.

As you can see, we are firmly of the belief that a Depreciation Report can be a valuable tool for your strata corporation.  We respect that there are differing viewpoints, and ultimately will take direction from our clients as to whether or not they wish to have one conducted; however, we thought it prudent to make our position known.

As noted in our Depreciation Report Seminar, if the strata corporation agrees with our position and wants to proceed with commissioning the report, it is important to get the resolution on the next general meeting agenda and approve the funding (or include funds within the next fiscal year’s proposed Operating Budget) in order to be in a position to engage a qualified firm to produce the Depreciation Report on time. If the strata council feels it is in the best interests of the strata corporation to waive (or ‘defer’) the requirement, we suggest it is wise to add the topic ‘Depreciation Report’ to the next general meeting agenda so that the owners are aware of the requirement and have an opportunity to discuss it and provide direction to council.

 Should you have any questions about the above, please don’t hesitate to talk to your Property Manager.  The above should not be construed as legal advice and is not offered as such.