Minimize Your Risk in Real Estate by Understanding the Depreciation Report
The Importance of Depreciation Reports for Strata Properties
A depreciation report also known as a reserve fund study in some regions, is a planning tool that identifies the common property, common assets and those parts of a strata lot the strata corporation by bylaw must repair and maintain. It tells a strata corporation what common property and assets it has and the projected maintenance, repair and replacement costs over a 30-year time span.
As a homeowner or investor in a strata property, understanding the significance of a depreciation report is crucial for ensuring the long-term maintenance and financial health of one of your biggest investments in life.
Planning for Maintenance and Repairs
By conducting regular assessments of building components such as roofs, windows, exterior walls, plumbing, and elevators etc. the report identifies when these elements are expected to reach the end of their useful life. This allows strata councils to plan ahead, ensuring that adequate funds are set aside to address maintenance needs without resorting to special assessments or unexpected financial burdens on owners.
Financial Transparency and Stability
For strata owners and potential buyers, a current depreciation report enhances financial transparency and stability. It provides a clear understanding of the property’s financial health by detailing the adequacy of the reserve fund in relation to projected future expenses. Lenders may also view a well-maintained reserve fund as a positive indicator of the property’s financial viability, potentially influencing mortgage approvals and interest rates.
Protecting Property Values
Maintaining the structural integrity and aesthetic appeal of common areas and shared facilities is essential for preserving property values in a strata community. A comprehensive depreciation report helps strata councils prioritize maintenance projects and allocate funds wisely, thereby safeguarding the overall attractiveness and marketability of the property.
Compliance and Legislative Requirements
Effective July 1, 2024
- All strata corporations with five or more lots must obtain a depreciation report on a five-year cycle; strata corporations with four or fewer lots continue to be exempted
- Strata corporations may no longer hold an annual ¾ vote to defer getting a depreciation report
- Strata corporations without depreciation reports, or depreciation reports received prior to December 31, 2020, will have time to obtain depreciation reports:
- until July 1, 2026, if located in Metro Vancouver, the Fraser Valley, or the Capital Regional District (excluding the Gulf Islands and other islands within the CRD)
- until July 1, 2027, if located in other areas of British Columbia
Effective July 1, 2025
Strata corporations must obtain depreciation reports from one of six designated professions: engineers, architects, applied science technologists, accredited appraisers, certified reserve planners, and quantity surveyors.
New strata corporations established on or after July 1, 2024 but before July 1, 2027, must get a depreciation report within two years of the strata corporation’s first annual general meeting and every five years thereafter
As of July 1, 2027, owner developers will provide some funding towards the first depreciation report for new strata corporations with five or more lots: a minimum of $5,000 plus $200 per strata lot to a maximum of $30,000. Accordingly, strata corporations established on or after July 1, 2027, must obtain a depreciation report within 18 months of the strata corporation’s first annual general meeting
Professional Expertise and Guidance
Preparing a depreciation report requires technical, financial planning, and management skills. Hiring qualified professionals, such as engineers or building consultants, ensures that the assessment is thorough and accurate, providing strata councils with reliable information to make informed decisions.
Conclusion
In summary, a depreciation report plays a pivotal role in the effective management and maintenance of strata properties. It empowers strata councils to plan strategically, maintain financial stability, and protect property values over the long term. By prioritizing regular assessments and professional guidance, strata communities can ensure a sustainable and prosperous future for all stakeholders involved.
Whether you’re a current owner or considering investing in a strata property, understanding and supporting the importance of a depreciation report is essential for making informed decisions and safeguarding your investment. I provide myself in helping clients to minimize risks in real estate, reach out if you have any questions.
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