Depreciation Reports

By Kris Grasty

Important ways they may affect your property value or mortgage approval.

Though Ontario passed this legislation over 10 years ago, the deadline for Depreciation Report compliance for B.C. was December 13th, 2013. These reports determine if reserve funds are established and allocated properly, reducing the risk to lenders by making strata homeowners less likely to face large special assessments. Depreciation Reports are not meant to force people to pay higher strata fees, although they can illuminate the need for higher contingency funds.

After initial preparation, the reports must be reviewed every three years. The cost to prepare the initial reports may be several thousand dollars, but follow-up reports may cost less, as much of the input may just be revisions of existing data.

Now the part that everyone seems to be going crazy about… increasing condo fees! Legislation does not force strata corporations to increase condo fees or even to follow the financial recommendations. For far too long though, these fees have started artificially low to get folks in the door and to keep current owners complacent, only to have many cry foul when they have to pay cooperatively towards an “unexpected” roofing project on a 35-year-old property. Inevitably, some condo fees should go up after a report is completed.

Do your due diligence; the banks will!
The ongoing proof of a property’s current state of repair will place proactive strata corporations who raise funds appropriately and focus on maintenance in a favourable light versus those who focus on a more costly repair-and-replace approach.

As a current condo or townhome owner, a Depreciation Report gives you valuable insight into the financial health of your strata, as well as the scope and cost of future repairs. Conversely, Depreciation Reports grant the home purchaser more transparency and help anticipate the costs of upcoming maintenance.

Depreciation Reports also protect lenders. As more and more properties use them, lenders will also rely on them to determine their risk of lending on a mismanaged property. Lending rules for qualifying for a mortgage have changed over the last few years: now, lenders may either refuse to lend on a property if there is no report provided or if recommendations have not been implemented or they may lend less money, contingent on a potential future levy or assessment.

Finally, although Depreciation Reports may add a little cost and effort up front, they protect investors from future contingency shortfalls and so protect the value of their investment for the long term.

Basic functions of a properly prepared Depreciation Report

1 Document an inventory of the common property, and common assets, as well as other strata property to be maintained.

2 Provide for an on-site inspection of the properties and assets to determine the overall condition or current state of repair.

3 Establish the remaining useful life of the inventoried properties and assets.

4 Estimate a projected maintenance, repair and replacement cost over a 30-year period.

5 Prepare a forecast for how the strata corporation plans to raise the capital to fund the outlined anticipated cost of repairs and maintenance.

Source: New Condo Guide