Depreciation Report

The provincial government introduced amendments to the Strata Property Act with Bill 12 (Strata Property Act, 2009) on March 23, 2009 and it received second reading on March 31, 2009.   While numerous changes were made; the implementation of depreciation reports will be discussed in this article.

The Amendment Act (Bill 12) substantially repealed Section 94 (Strata Property Act, 2009 ) and replaced it with provisions requiring that all existing and future strata corporations obtain a depreciation report.  The report must estimate the repair and replacement costs for “major items in the strata corporation and the expected life of those items”.  These “major items” will be prescribed in the regulations by future order-in-council.

94 (1) The strata corporation may prepare a depreciation report estimating the repair and replacement cost for major items in the strata corporation and  the expected life of those items to assist it in determining the appropriate amount for the annual contribution to the contingency reserve fund.

94 (2) A depreciation report may contain information based on the guidelines for depreciation reports as set out in the regulations and may be in the  prescribed form.

The Amendment Act requires that the report be prepared by “qualified persons”.  It is suggested that this will include accountants, surveyors, engineers and architects among others.

If the strata corporation has not previously completed such a report, they will be required to do so within two years of the coming into force of this provision.  If  a strata corporation has already obtained a report that complies with the provisions, they will not need to obtain a new report at this time, but will need to have updates completed to comply with the  provisions that will be determined. 

The strata corporation can release themselves from their obligation to complete a depreciation report by a resolution passed by a 3/4 vote at an annual or special general meeting, or if the strata corporation is a member of the prescribed class. The prescribed class, according to the legislative record, will include bare land strata developments and small strata developments, i.e. duplexes.

The provincial government has yet to provide a complete definition of the report requirements and it is hoped that it assists strata corporation’s in addressing long term planning and integrated maintenance.  Planning is required for each strata corporation to protect the common asset as maintenance is the best way to maintain the building systems and reduce costs.  Long term planning and maintenance will prolong the life cycle of the building systems, allow Strata Corporation’s to plan renewals without emergencies and reduce premature failures of systems and costly resultant damage. 

Permitting strata corporation’s to opt out of a depreciation report with a ¾ vote will not ensure that those strata corporation’s who currently do not perform long term planning and maintenance will do so.  This will widen the dividing line between maintained and neglected strata corporations and potentially defeat the intent of the Amendment Act (Bill 12).

While the provincial government could remove the word “may” from Section 94 of the Strata Property Act, thus making each strata corporation perform a depreciation report; would these reports actually be utilized, or would they just collect dust on a bookshelf?  Furthermore, is implementation even possible in some strata corporation’s who have insufficient operating and contingency reserve funds?  This is a reality as some buildings have never implemented plans and their capital costs are rapidly increasing, making their building unsellable.

Owners are one of the major obstacles when it comes to funding and undertaking capital projects.  Some owners believe that they pay their monthly strata fee and it covers all strata corporation costs including capital maintenance, while others feel that they will be moving and do not want to pay for improvements that will be enjoyed by others.  In western Canada, property value is traditionally high with strata fees being low. 

If the completion of depreciation was mandatory and a mechanism was provided to make implementation compulsory, it may result in well maintained strata corporations.

Furthermore, simple depreciation reports will not alter much. Capital reserve studies would be more beneficial as it would provide “a long range financial planning tool that identifies the current status of the capital reserves, integrates operational schedules for maintenance and planning and provide a funding plan.” 

Given that the specifics surrounding implementation and requirements have yet to be established; all owners are encouraged to participate in the open public consultation process at http://housing.gov.bc.ca/housing/strata.htm.

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