Strata Documents & Why They Are Important to Read

As a buyer in BC, Canada, it is crucial to thoroughly read and understand the strata documents before making a purchase. Strata documents provide important information about the building and its management. These documents can reveal potential issues such as ongoing disputes, special levies, or upcoming repairs.

Being informed about the state of the strata will help buyers make a more informed decision and plan for expenses or problems down the road. Ultimately, taking the time to read and understand the strata documents can provide valuable insights and help buyers make a more informed decision about their investment in a property. Provided below is a compilation of commonly found strata documents.

 

What is a DEPRECIATION REPORT?

What depreciation reports are, is a way to assist strata properties project maintenance and replacement of common properties. The reports create projections over the next 30 years, while estimating costs, and how to finance these costs over that time period.

So in other words, is it estimates when components will wear out, how much it will cost to replace, and best way to pay for that cost.

 

DEPRECIATION REPORTS & EVERYTHING YOU NEED TO KNOW ABOUT THEM

Home Inspection 101 Inside The Inspectors Head
Featured Blog Post Written By Aaron Borsch from A Buyer’s Choice Home Inspections 

Finally into the warmer months! Last blog I spoke about other aspects of a strata building, now I wish to speak about depreciation reports, and what sort of information we can gather from them.

What is a Depreciation Report?

What depreciation reports are, is a way to assist strata properties project maintenance and replacement of common properties. The reports create projections over the next 30 years, while estimating costs, and how to finance these costs over that time period. 

So in other words, is it estimates when components will wear out, how much it will cost to replace, and best way to pay for that cost.

To understand why they are now the reality, lets take a small review how strata’s work. Any building will require maintenance and replacement of worn components some point of time in the future, which of course costs money. For strata spaces, the cost of these repairs and replacement is shared among all the owners. 

There are two main ways a strata pays for things. Either from money saved up from collecting strata fees, [which is then put in to the contingency reserve fund] or by everyone paying everything at once, or other words, special levy.

Now onto depreciation reports. Before these reports, it was very difficult for a strata property owner to determine what sort of costs would be coming up in the future. The result of that was unexpected special levies assessed to the owners. People generally don’t like to pay a large lump sum at once, and this made many people upset. So, the depreciation report is there – as mentioned previously – to help the strata estimate when components will wear out and how much it will cost to replace them. Ultimately, it helps the strata to budget and try to minimize the amount of special levies that will be put on to the owners.

 

How often are depreciation reports done?

Legislation came into play that required strata’s to obtain depreciation reports every 3 years, based on public pressure for a method to somehow assist current and future owners manage costs. However, a strata can vote to defer a report, but it requires a 3/4 vote of all the strata to do so. If an annual 3/4 vote is not passed, then strata corporation must obtain a depreciation report no later than 6 months after their AGM.

 

Now while it is a requirement for a strata to obtain these reports, there are ways to circumvent this. If you have 4 units or less, you are not required to get a depreciation report.

 

What is included in the Depreciation Report?

There are a few requirements that a depreciation report must have. They are as follows:

• A physical inventory of the common property and assets
• Summary of maintenance and repair work to be done
• Anticipated maintenance and replacement over the next 30 years
• Financial forecast for 3 different funding models
• Current contingency balance and how its funded
• A strata’s errors and omission coverage
• If any one individual owners are to maintain certain components

Note that there is no standard qualification for the author of the report.

Typically companies that prepare these reports are either engineering companies, or appraisal companies.

 

What to Look for in a Depreciation Report

The information in the report can be fairly daunting. When I read these reports, I typically try and focus on a few items. Here are some tips

Look at the remaining life of some major components. These components are the roof, cladding systems, elevator, parking membrane, windows, large boiler systems, and decks.

The summary will provide a quick description if there are items that should be of concern

Depreciation reports assume 100% replacement cost, but it doesn’t mean 100% replacement needs to happen. For example, it may say decks need to be replaced in 15 years. In reality, what will happen is in 15 years, the decks will be assessed, and determined if they really do need to be replaced as a whole, or if only some need to be replaced.

Just because its on the depreciation report, doesn’t mean it has to be done

Depreciation reports are not required to be followed, it is only information. At the end of the day, strata votes decides what happens. And while not every single item has to be done on a depreciation report, its important to vote on the items you believe need to be done. The strata also votes on how its to be paid. If a strata votes to increase strata fees, or do a special levy.

Common life spans of components of strata buildings

Here are some common life spans of some of the major components of a strata

• Roof: 20-25 years
• Windows: 30-40 years
• Balconies: 10-15 years
• Water lines: 30-40 years
• Cladding (assuming not requiring rainscreen): 25-40 years
• Elevators: 25-35 years
• Underground Parking Membrane: 20-25 years
• Standard Large Boilers: 20-25 years
• Commercial Water Heaters: 8 to 10 years

Written By:
Aaron Borsch
Certified Master Home Inspector (CMHI)
License #: 53540
Phone: 604-880-0818
Email: Aaron.Borsch@coreinspect.ca
Website: CorePropertyInspections.ca

Why is FORM B important to read?

It is important to review Form B as it provides a comprehensive summary of the unit's contents and what you can anticipate. This document confirms pertinent details such as the maintenance fees for the strata, parking stalls included, and whether a storage locker is available.
 

Moreover, it outlines the strata's financial aspects, specifying the amount in the contingency reserve fund and any special levies/assessments that the building's owners must pay.

 

For those considering investing, this document also indicates information about any associated rental restrictions.

  

Strata Fees, Levies and Special Assessments explained.

When considering the purchase of a strata property in British Columbia, it's important to understand the different types of fees associated with the property, including regular strata fees, levies, and special assessments.
 

Regular strata fees are the monthly or annual fees paid by all owners in the strata to cover the ongoing maintenance and operation of the common property. These fees typically cover things like management fees, utility fees for common areas, strata insurance, janitorial, landscaping, snow removal, etc.

 

Levies and special assessments, on the other hand, are additional fees that are assessed by the strata council to cover specific, one-time projects or expenses. These may include things like repairs to the building's exterior, repairs of the parkade, upgrades to common areas, or the installation of new amenities.

 

It's important for potential buyers to understand that levies and special assessments are not the same as regular strata fees, and can have a significant impact on the overall cost of ownership. They can also vary greatly from property to property.

 

When buying a strata property, it is important to review the Annual General Meetings (AGM’s), Special General Meetings (SGM's), and recent Depreciation Report to find information about levies and special assessments. Additionally, buyers should also find out what their unit entitlement is. This information can be generally be found at the end of the AGM in the PROPOSED STRATA FEE SCHEDULE section. You can get an idea of the buyer's % share of levies & special assessments by dividing the unit entitlement by the total entitlement.

 

When it comes to voting, it's important to note that strata boards make decisions on how to spend the money collected from strata fees and levies, and voting is completed in Annual General Meetings (AGM's) and Special General Meetings (SGM's) and not on a monthly basis. It is important for buyers to understand the voting process and how it can impact the planning for spending on their strata property.

  

Assumption of Liability for Renos

First and foremost, it is important to understand that all renovations and improvements made to a strata property must be approved by the strata council. This includes anything from painting to major structural changes. To obtain approval, you will need to submit a renovation application to the strata council, which should include detailed plans, specifications, and any necessary permits or approvals from local authorities.
 

Once your application has been reviewed and approved, you will need to ensure that all work is carried out in accordance with the approved plans and specifications. This means that you will be responsible for ensuring that all work is done by licensed and insured contractors, and that all necessary permits and approvals are obtained.

 

In the event that you are purchasing a property that has already been renovated, it is important to understand that you will be assuming liability for any changes made by previous owners. This means that you will need to review any strata documentation or depreciation reports to ensure that all renovations were approved by the strata council and that any necessary permits or approvals were obtained.

 

It is also important to note that if any issues arise with the renovation work, you may be held liable for any costs associated with resolving those issues, including any legal fees. Therefore, it is essential that you thoroughly review all documentation and conduct a thorough inspection of the property prior to purchasing.

 

We hope this information is helpful as you navigate the process of purchasing a strata property. If you have any further questions or concerns, please don't hesitate to reach out to us.

    

Why are the ENGINEERING REPORTS important?

Strata buildings and complexes generally have a 2-5-10 warranty that covers cosmetic, mechanical, and structural components. As these milestone years approach, the strata council usually commissions an engineering report to ensure that necessary maintenance covered by the warranty is completed.
 

The engineering company hired will assess the building for any deficiencies, allowing the strata council to identify any issues that may need to be addressed within the warranty period. Thus, reading the Engineering Report is crucial to maintaining the structural integrity of the building and preserving its warranty coverage.

  

Why is it important to Review the STRATA INSURANCE POLICY SUMMARY ?

When purchasing a strata property in British Columbia, it's important for buyers to understand the strata insurance policy.
 

Some strata properties have experienced a big increase in their insurance costs. This has led to higher deductibles, more expensive strata fees, and owners being responsible for more costs if they make a claim. There are a few reasons why this is happening, such as rules in the Strata Property Act, the fact that properties in BC are expensive, and insurance companies thinking that there is a high risk of claims. Also, there aren't as many insurance companies to choose from.

 

While the narrative around this problem has focused predominantly on premium increases, the lesser mentioned factor is that some strata corporations are also seeing their deductible amounts skyrocketing to levels not covered by most personal insurance policies. Some water deductibles are as high as $500,000 ...and some even higher at $1,000,000!

 

For example, if a strata has a $500,000 water damage deductible and an owner can only get $100,000 of home insurance coverage, that owner could be on the hook for $400,000 if there is a loss from within their unit. This is a scary reality, so it’s important that consumers are made aware of these figures and advised to seek advice from a qualified insurance broker.

  

Why is it important to Review the MEETING MINUTES?

As a real estate agent, it's crucial that I emphasize the importance of reviewing strata minutes with my clients. I advise my clients to conduct a full 2-year review of strata minutes.
 

Strata minutes are the official record of meetings and decisions made by a strata council, which govern a strata corporation. They give an idea of current projects and issues in the building. Examples may include security upgrades, noise complaints, special levies, repairs and maintenance. Reading the minutes helps you understand how the council addresses these matters and how proactive they are and provide insight into the current state and future plans of the building they call home.

 

The council consists of elected or volunteer residents and a property manager who manages the building's finances.

  

Why are the Strata FINANCIAL STATEMENTS & APPROVED BUDGETS Important?

When considering purchasing a strata property, it's important for buyers to understand the financials of the building. This includes reviewing the strata's budget, expenses, and savings plan. The budget should outline the regular strata fees, as well as any levies or special assessments that may be charged to owners. It's important to understand the difference between these types of fees, as levies or special assessments may be charged for specific projects or repairs that the regular strata fees do not cover.

 

In addition to reviewing the budget, buyers should also look at the building's Contingency Reserve Fund. This fund is set aside for unexpected repairs or expenses, and is typically funded through a percentage of the strata fees. Understanding how the Contingency Reserve Fund is used and funded can give buyers an idea of the building's financial stability and preparedness for future expenses.

 

List of Common Strata Terms and Definitions:

Strata Corporation: A legal entity that is established to manage the common property and assets of a strata property.

Strata Council: A group of strata owners elected to govern the strata corporation.

Annual General Meeting (AGM): The most significant strata meeting where strata owners elect the strata council and vote on important matters.

Special General Meeting (SGM): A strata meeting called for a specific purpose, such as voting on a bylaw amendment.

Regular Council Meetings: Meetings where the strata council conducts its business, makes decisions, and implements its plans.

Bylaws: Rules and regulations established by the strata council to govern the strata corporation.

Strata Fees: Monthly fees paid by strata owners to cover the cost of maintenance and repair of common property and assets.

Special Assessments: Additional fees levied by the strata council to cover unexpected expenses.

Maintenance and Repairs: The upkeep and repair of common property and assets, covered by strata fees.

Common Property: Areas of the strata property that are shared by all owners, such as hallways, elevators, and recreation facilities.

Limited Common Property: Areas of the strata property that are for the exclusive use of one or more strata owners, such as balconies and parking stalls.