Tuesday, December 17, 2013

Condominiums and Depreciation Reports: What you need to know!

Saturday December 14th 2013 was the deadline by which about half of BC’s 28,000 Strata Corporations were required to prepare Depreciation Reports on the condition of the common areas of their condominium projects, along with a financial plan to repair and maintain the common property.
As someone who has owned and lived in condominiums, and helped purchase a condominium apartment for my daughter, http://gellersworldtravel.blogspot.ca/2011/08/buying-condo-should-you-get-inspection.html I believe this is a very significant legislative change. However, it has received little publicity and few condominium owners know very much about it.
Here is a link to the BC Government website notification: http://www.housing.gov.bc.ca/strata/regs/
Status of Changes to the Strata Property Act and Regulations
Depreciation Reports
Status: In Effect
A depreciation report helps strata corporations plan for the repair, maintenance and replacement of common property, limited common property and common assets.

Strata corporations in British Columbia need to obtain depreciation reports every three years unless they hold an annual 3/4 (three quarter) vote to exempt or have four, or fewer, strata lots. There are different timing requirements for the first depreciation report depending on when the strata corporation was formed.

  • For strata corporations formed on or before December 14, 2011, a depreciation report is required by December 13, 2013.
  • For strata corporations formed after December 14, 2011, a depreciation report is required within 6 months after their second AGM. While the requirement for new strata corporations took effect via an Order in Council dated February 28, 2013, it will take several weeks for the new changes to be reflected in the online version of the strata property regulations.

See Guide12: Depreciation Reports

Further Resources:CHOA (Condominium Home Owners Association) and VISOA (Vancouver Island Strata Owners Association).

There’s a lot of misunderstanding regarding this new legislation
For one thing, the legislation allows Strata Councils to opt out of preparing a report by a ¾ vote. However, I am advised by the Condominium Homeowners Association that this may not the case…while they can delay the preparation of the report by voting annually to do so, ultimately it may have to be prepared.  This needs further clarification.
To those Strata Councils who prefer to stick their heads in the sand and not learn about their building condition, I have some more bad news. I am advised that CMHC which insures loans, and some lenders have decided they will not finance mortgages for existing owners or future buyers of condominiums in some projects that have not prepared a Depreciation Report. 
Moreover, while the Depreciation Reports will give a realistic assessment of a building’s condition, and may in some instances reduce the value of a unit, overall, units in buildings without reports will lekely be worth less than comparable units in buildings with reports on file.
A good thing
I believe this new requirement will be a good thing for both condominium owners and future buyers. However, I anticipate a lot of angst as condo owners, especially those in older buildings discover that their buildings are not in as good a condition as they thought they were, and are facing significant special assessments and increases in monthly strata fees.
So if you own a condominium, or thinking of buying a condominium, I would urge you to learn more about this legislation, and whether a project has in fact completed a Depreciation Report. In the meanwhile, my advice is to not buy in a building that is obligated to prepare a report, and hasn’t done so.
Finally, I anticipate other ramifications of this new legislation. Many buyers will chose to sell older units and move into new buildings covered by warranty. Also, many people will seek out alternatives to condominium living, such as individually owned 'fee-simple' row houses or smaller detached houses that are not part of a condominium. This will result in new development opportunities for innovative housing developers.


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Sofia beth said...
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mical hasi said...

Thanks for sharing your information about Depreciation Reports.It's really helpful for us when required to prepare Depreciation Reports on maintain the common property.