Closing a small loophole in strata regulations around depreciation reports could yield big savings, says the president of B.C.’s largest property management company.
First Service Residential president Chris Churchill said those reports are “extremely important for the safety, both financially and well-being, of the residents of the strata building,” but those reports can currently be deferred indefinitely.
Strata corporations with five or more strata units must obtain depreciation reports — also known as reserve fund studies — that project costs for maintenance, repair and replacement of common property and assets such as the building structure, building systems like heating among others and common amenities and facilities over 30 years.
Costs for depreciation reports can vary can range from a few thousand dollars for the most basic strata corporation, to well over $10,000 for a large strata.
In other words, they can be expensive and reveal liabilities.
Churchill noted if all deficiencies are written it a report, it could really hurt property values, so strata owners have incentives to defer them, potentially indefinitely
“There are cases where deferring it is OK,” Churchill said. “The danger is that there are no parameters or rules to keep those buildings both safe and (to avoid) a huge financial liability for owners.”
But, he added that stratas that defer the reports expose future owners to potentially significant costs down the line.
Depreciation reports must be renewed every three years, but strata corporations can waive the requirement to obtain a depreciation report or defer renewal if 75 per cent of strata members agree to do so at their annual general meeting.
Strata corporations have six months to obtain a depreciation report if a vote to waive the requirement has failed.
While it’s not clear how many stratas defer depreciation reports, Churchill believes this deferral loophole will be a problem down the line.
“There is a very high likelihood that within the next 10 years in British Columbia, there are going to be a lot of buildings that require a lot of maintenance without very many people whatsoever who can afford to do the special levies to support the maintenance to keep the buildings actually safe,” he said.
He added that with insurance rates going up rapidly, this could be a direct answer to fixing rates.
“If you have a good preventative maintenance program and you follow your depreciation report, you are eventually going to lower all of the costs for a building, because it is well-maintained,” he said. “I hate to use the analogy, but it is like a car — get your oil changes done and take care of your maintainence and you are not going to have any major costs for that vehicle.”
The Housing Ministry said in a statement the province will be doing policy work this year to close this loophole and revise what must be included in a depreciation report, along with revisiting the appropriate professional qualifications needed to prepare the reports.