Depreciation Reports in BC: A Key Strata Document for Long-Term Property Planning
In British Columbia (BC), a depreciation report is a crucial tool for strata corporations, required under the Strata Property Act. It provides a detailed evaluation of a building's common property and assets, offering a long-term forecast (typically 30 years) of future repair, maintenance, and replacement costs. This report helps strata corporations to plan for the upkeep of shared assets and to allocate funds appropriately, ensuring that owners avoid costly surprises down the line.
Key Features of a Depreciation Report
Physical Component Inventory and Evaluation
The report provides a comprehensive inventory of common property assets such as building structures, exteriors, and systems (e.g., heating, ventilation, plumbing). It includes an assessment of these items’ current conditions, their expected lifespans, and projected repair or replacement timelines.
Financial Forecasting
A critical feature is the financial projection section. This estimates the costs of maintaining or replacing assets over the next 30 years, and presents three funding models for the strata to consider. These models can incorporate contingency reserve funds, special levies, increased strata fees, or borrowing.
Executive Summary
The report now requires an executive summary that outlines major findings and is designed to be accessible to owners, prospective buyers, and even financial institutions like mortgage providers.
Cash Flow Models
These models provide the strata with options for how to fund necessary repairs. For example, they might include recommendations for building up the contingency reserve fund (CRF) or raising funds through special assessments.
Assessment of Emerging Needs
The report identifies any areas that may require upgrades due to regulatory changes (e.g., new building codes). It also suggests cost-saving measures, such as energy-efficient upgrades or less expensive alternatives for future replacements.
Purpose of a Depreciation Report
The primary purpose of a depreciation report is to help strata owners and corporations proactively manage their property and financial planning. By detailing future maintenance needs and associated costs, it prevents large, unexpected expenses and allows for better long-term financial planning. For potential buyers, the report offers insight into the health of the building and the likely future expenses, which can influence buying decisions.
In addition, mortgage lenders and insurance companies often request access to the depreciation report as it helps them assess the financial soundness of a property.
Rules Around Depreciation Reports in BC
Effective July 1, 2024, the BC government has updated its regulations concerning depreciation reports, including these key changes:
Mandatory for Stratas with 5 or More Units
All strata corporations with five or more units are required to obtain a depreciation report every five years. Deferring this requirement via a ¾ vote of the owners is no longer allowed.
Deadlines for Compliance
Strata corporations in Metro Vancouver, Fraser Valley, and the Capital Regional District must obtain their first report by July 1, 2026. For stratas outside these areas, the deadline is July 1, 2027.
Qualified Report Providers
Starting July 1, 2025, depreciation reports must be prepared by one of six designated professionals: engineers, architects, applied science technologists, accredited appraisers, certified reserve planners, or quantity surveyors. This ensures the quality and reliability of the reports.
Funding for New Stratas
For new strata corporations established after July 1, 2027, developers must contribute to the first depreciation report. The contribution is at least $5,000 plus $200 per strata lot, with a maximum of $30,000.
Practical Considerations
Strata corporations need to gather as much information as possible to make the first depreciation report cost-effective. This includes maintenance histories and interviews with owners or staff who are familiar with the building’s condition. Additionally, reviewing draft reports for errors or unreasonable assumptions is critical for accuracy.
In conclusion, the depreciation report is a vital planning tool for strata corporations in BC, offering a structured way to manage the future repair and replacement costs of common assets. With the strengthened regulations, the province ensures that stratas stay proactive in maintaining the quality and value of their properties.
Frequently Asked Questions (FAQ) About Depreciation Reports
Is every strata required to get a depreciation report?
No. Only strata corporations with five or more units are required to obtain a depreciation report. Stratas with four or fewer lots are exempt from this requirement under the Strata Property Act.
How often must a strata corporation obtain a depreciation report?
Strata corporations with five or more lots must obtain a depreciation report every five years. There is no longer an option to defer this requirement by a ¾ vote of owners.
What happens if a strata corporation doesn't have a depreciation report?
If a strata corporation fails to obtain a depreciation report, it could face challenges when selling units, as the report is often requested by potential buyers, mortgage lenders, and insurance companies. Additionally, the strata may not have an accurate long-term maintenance plan, which could lead to unexpected financial difficulties.
Who can prepare a depreciation report?
As of July 1, 2025, only certain professionals are qualified to prepare a depreciation report. These include engineers, architects, applied science technologists, accredited appraisers, certified reserve planners, and quantity surveyors. The strata must ensure that the professional they hire has the appropriate qualifications.
What if our strata doesn't have many shared assets? Do we still need a depreciation report?
Yes, even strata corporations with minimal shared assets (like bare land strata corporations) must obtain a depreciation report if they have five or more lots. The report will cover the common property you do have, such as roads, utilities, and other infrastructure.
How much does a depreciation report typically cost?
The cost of a depreciation report varies depending on the size and complexity of the strata. While smaller strata corporations with fewer assets may spend a few thousand dollars, larger, more complex strata corporations may incur higher costs. Stratas can fund the report through their contingency reserve fund (CRF) or special levies approved by owners.
Can we update our depreciation report instead of getting a new one?
Yes. While a new report is required every five years, strata corporations are encouraged to update their existing reports as new information becomes available or if circumstances change. Updating a report is generally more cost-effective than starting from scratch.
What are the consequences of not following the depreciation report's recommendations?
While a depreciation report provides valuable insights and recommendations, it is up to the strata corporation to act on them. Failure to follow recommendations could result in higher costs down the line, as delaying necessary repairs or replacements often leads to more significant damage or emergencies requiring costly special levies.
How does a depreciation report benefit prospective buyers?
A depreciation report offers potential buyers transparency into the future maintenance and financial health of a strata corporation. It helps buyers understand potential upcoming costs and assess whether the strata has adequate funds in its contingency reserve to cover necessary repairs.
Can a depreciation report help reduce strata fees?
While the report itself doesn’t directly reduce strata fees, it can help strata corporations plan better for long-term expenses, which can prevent sudden special levies. Good financial planning based on the report's projections can stabilize or gradually increase strata fees, making ownership costs more predictable for residents.
Additional Resources for Understanding Depreciation Reports
For more information about depreciation reports and strata management in British Columbia, the following resources can provide valuable guidance:
BC Government: Depreciation Report Requirements
Learn about the legal requirements and content expectations for depreciation reports under the Strata Property Act.
Visit the BC Government WebsitePractical Tips for Strata Depreciation Reports
A guide from the BC Government offering practical advice on preparing, reviewing, and maintaining a depreciation report.
Explore Practical Tips
Explore our sample condo and strata document review report to discover how we highlight the potential and concerns of properties, aiding both real estate professionals and buyers.