Permitted Investments Under The Strata Property Act

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In a previous post, we wrote about the subject of investments permitted by Regulation 6.11 of the Strata Property Act. This Regulation had been one of the more confusing and ambiguous sections of the Act and the source of a great deal of controversy.

The Regulations were recently updated and proclaimed by the Government in an effort to reduce the confusion and clarify what types of investments are permitted. The new Regulations dramatically reduced the number of allowable investments under the Strata Property Act. This topic may not have affected you or our Strata Corporation yet, but particularly in light of the rising levels of Contingency Reserve Funds associated with Depreciation Reports, it is likely a topic that would have arisen sooner or later.

Regulation 6.11 of the Act has been significantly pared back, specifying a more restrictive group of allowable investments and clearing up a number of ambiguities. Most of the previously permitted investments have simply been eliminated, and there are now only 4 classes of investments permitted.

You can see the revised wording here:

Revised Regulation 6.11

For reference, the longer and now eliminated list of investments can be found here:

Old Regulation 6.11

If your Strata Corporation is considering an investment other than a Term Deposit, GIC, or the like, we strongly recommend seeking independent legal and investment advice.

What follows is the advisory released by the Housing Policy Branch, Office of Housing and Construction Standards, Ministry of Natural Gas Development and Minister Responsible for Housing:

The introduction of mandatory depreciation reports has highlighted the importance of saving for future repairs via contingency reserve funds. It is estimated that strata councils will soon be managing over a billion dollars in these funds.

As you may be aware, in mid-April Cabinet approved an Order in Council making changes to section 6.11 of the Strata Property Regulation (B.C. Reg. 43/2000), in order to simplify and modernize provisions governing investments for money held in contingency reserve funds and collected on special levies. The changes respond to feedback from strata council members and investment experts about some of the existing provisions being outdated, inappropriate, or difficult to understand. Partly as a result, most strata corporations reportedly put all of their CRF in low interest bank savings accounts, which lag well below inflation. This may represent a lost earnings opportunity, especially for funds being saved for repairs many years in the future, and means that strata owners will have to pay higher strata fees in order to save enough.

Effective in July 2014, the amendment allows strata corporations to invest in a range of high quality investments, such as certain bonds and fixed income exchange traded funds, while eliminating rarely used and riskier investments (for example, individual stocks, preferred shares, foreign bonds, mortgages and mortgage backed securities).

The vast majority of existing accounts or investments actually used by strata corporations would qualify under the new regulation. Any existing strata corporation investments that do not qualify under the amendment are grandfathered until they mature or are sold. For clarity and consolidation, two existing sections of the Regulation (6.12 and 17.5) that grandfathered earlier investments (those predating the existing regulation) were repealed because they are unnecessary. The Interpretation Act accomplishes the same thing and also ensures that strata corporations will not have to sell their current investments when the new regulation takes effect.

For detailed information on the amendment, please view the attached Order in Council. As always, it can take a few weeks for Queens Printer to update the version of the Regulation on www.bclaws.ca. We will be posting something shortly on our website here in the near future.

Doug Page, RI(BC)
Manager
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Housing Policy Branch, Office of Housing and Construction Standards
Ministry of Natural Gas Development and Minister Responsible for Housing