Understanding The Depreciation Report
Preamble: Provincial legislation requires every strata corporation in BC of 5 or more units to either acquire a Depreciation Report for the property or defer the report by means of a 3⁄4 vote of the owners at a general meeting. The report projects the anticipated costs of maintenance, repair, and replacement of building components over the next 30 years. Acquiring a report provides a long-term plan for strata property maintenance allowing owners to plan for future expenditures. A vote to defer has an 18-month time limit, resulting in the need to vote again at subsequent AGMs.
Buyers and the Depreciation Report
Buyers typically hone in on one aspect when looking at the Depreciation Report (DR): Does the strata corporation have enough money in the Contingency Reserve Fund (CRF) to complete the repairs/replacements identified in the DR?
If the answer is no, and there is scheduled maintenance for next year, then look at the amount of the cost of this repair/replacement. Depending on the cost, a buyer should expect an increase in monthly contributions to the CRF fund. This means that something has to be cut, or your strata fees will have to increase. If it is a big item then expect an assessment coming to the strata lot owners. Whoever owns the strata lot, at the time the assessment is approved by the council is responsible for paying the full assessment.
Notes on the Depreciation Report:
- Another name for the Depreciation Report (DR) is a Reserve Fund Study (RFS). RFS is typically the name used in the line item of the balance sheet. This line item tells you how much money has already been set aside to address the DR.
- The DR is not a maintenance manual.
- Look at the 3 to 5-year financial model, no point looking at the 30-year plan, as it is should/will change.
- The bylaws of the strata should align with the DR, e.g. if the windows are a responsibility of the strata then the DR should have a section on the windows.
- Common property and limited common property should be addressed.
- It will be noted in Form B if the strata have a DR.
- A draft of the DR is not as good as a final report. A draft can be changed. In addition, it can take a draft 6 months to become a qualified report. It is always interesting to note how long the report has been in draft format.
- When the DR was written several years ago, it is not necessarily a red flag. Look at the budget and see if the strata corporation is doing the work. Find out what the contributions are to the CRF, and what should the contributions be.
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