Stratas bank millions in anticipation of future costs

Depreciation reports important, but not always valued by building owners

By
Business in Vancouver
September 27, 2018






apartments
Five years after the province began requiring all strata corporations in the province to obtain depreciation reports projecting maintenance, repair and replacement costs for their properties over a 30-year period, homeowners have paid hundreds of millions of dollars to boost reserve funds in anticipation of the work.
 
But with many now updating their initial reports, have they transformed how residential properties in the province are managed and assessed by potential purchasers?
 
Tony Gioventu, executive director of the Condominium Home Owners Association of BC (CHOA), thinks they have.
 
While the strength of the residential market over the past decade has been such that “you could have sold just about anything and everything in any condition for a good price,” Gioventu said owners have thrown their support, and their money, behind the reports.
 
“We have taken an industry that was almost 50 years old and introduced a mandatory planning process that was never there before,” he said. “The numbers that we’re seeing with respect to the contributions that people are now making to their reserve funds have doubled and tripled, which is an indication that they are looking closely at their depreciation reports and planning for the future.”
 
But not all strata corporations have commissioned the reports. Those with four units or fewer are exempt from the requirement, as are those in which three-quarters- of the owners vote during a general meeting to waive the requirement. Others have simply ignored the requirement, because strata owners police themselves. (An owner can bring the matter to a vote at a general meeting or seek recourse through the civil resolution tribunal that typically handles strata disputes, but few take that route.)
 
The net result is that just 60 per cen to 70 per cent of the province’s strata corporations have obtained the report, according to CHOA’s surveys of its membership. This matches the findings of a 2016 survey that management consulting firm Crux Group prepared for the Real Estate Institute of Canada’s Greater Vancouver chapter.
 
Working with BC Assessment Authority data, Crux determined that 13,700 strata corporations required the reports. Responses from 47 firms preparing the reports – a sample representing about 80 per cent of the market – indicated that just 7,990 had obtained one.
 
Most were completed in 2013 and 2014. Crux attributed the decline in completions to their being “not perceived [as] actionable, enforceable or necessary by the strata corporations receiving them.”
 
Crux found that most strata corporations were passing the buck when it came to setting aside enough cash to fund the maintenance outlined in the reports. While the province requires the report, it only requires contingency reserve funds to equal 25 per cent of the strata corporation’s annual operating budget.
 
Most stratas (54 per cent) had set aside enough to cover 20 per cent or less of what their depreciation reports required, and half of these had set aside 10 per cent or less.
 
“Most people don’t want to pay their fair share; most people would prefer that the next owner pays more, especially if they’re going to sell in a few years,” said Mike LaPorte, a senior partner with NLD Consulting in Vancouver and an instructor of the Real Estate Board of Greater Vancouver’s course on depreciation reports. “They’d rather sell and not have to contribute to something that’s going to have to be replaced after their ownership period.”
 
Nevertheless, LaPorte said realtors now expect to see a depreciation report for every strata listing. Greater awareness of the reports also means not having one could be a deciding point for some buyers, especially as the market slows down and a less frenzied pace gives buyers more time to consider the variables.
 
Buyers may have something to worry about if a strata hasn’t commissioned or isn’t following the recommendations of its depreciation report, said Allyson Baker, a partner specializing in strata law with Clark Wilson LLP.
 
Baker has worked with strata corporations under a variety of conditions, but depreciation reports have eliminated surprises, and a lot of stress, for owners. While many strata corporations waive the requirement year after year, those that plan ahead have greater peace of mind.
 
“There’s never going to be perfect compliance or perfect enforcement, but I don’t necessarily see as many of the crises that I used to because there’s a bit more planning,” she said.

Copyright © 2018 Western Investor

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