As strata agents who manage multiple strata buildings in BC, this is a question that we get asked all the time; “do we need a depreciation report?”
Depreciation reports have been mandatory for BC strata corporations since 2011, and the only way to get out of having one is for the owners to vote on deferring annually at either an AGM or SGM.
Now, of course you can vote not to have a depreciation report, but is this really the best option for your Strata building?
The pros of having a depreciation report
There are many reasons to have a depreciation report done for your strata building.
First and foremost, having this report will bring a tremendous amount of transparency to your funding requirements. It’s really a great tool to help the Strata Councils plan for their needs.
It’s also a great tool for buyers to see what they’re buying into, and this is really the reason that they were conceived. As an example, if the strata corporation has only $100,000 sitting in the CRF, but knows that a new roof is going to be required within the next 2 years at a cost of $1,000,000, then as a buyer you can expect a massive special levy coming down the pipeline which gives you some negotiating power at purchase. Prior to these reports, it was really “buyer beware”!
Some lenders are also requiring these reports for mortgage financing, although many will still lend on buildings without depreciation reports.
The cons of having a depreciation report
The are a couple reasons for Stratas to not obtain a depreciation report.
The biggest one here is cost! They are extremely expensive, and won’t necessarily fit into the budget for every strata corporation.
The second one is for new buildings. Does a 5 year old building really need a depreciation report, when everything is pretty much new and won’t really require much replacement until at least year 10?
Another reason to shy away from obtaining a depreciation report would be if your strata building is trying to hide something! If you know that there is a massive CRF gap, or if you’re planning for some major renovation in the next year and want to wait until the work is done, it might be good to defer the report until then. Lenders can be VERY picky these days, and if they see something in the report that they don’t like, they may blacklist the building from any financing. We have seen this happen for very minor deficiencies with mortgage lenders and insurers such as CMHC or Genworth.
As you can see, there can be arguments made for both sides, so it really depends on the needs of your particular strata building.
Looking for answers to your strata management questions? Give us a call, and we would be happy to help you find some answers. Contact us here.
July 1, 2018