What is a Depreciation Report?
According to the Strata Property Act, the depreciation report is to provide estimates for “the repair and replacement costs for major items in the strata corporation and the expected life of those items.” The goal of this report is to assist strata owner with the prudent management of their common property, limited common property and common assets by providing information on repairs and replacements that will need to be funded, as well as determining the amount that should be contributed to the contingency reserve fund.
Depreciation reports are now mandatory for all strata corporations with two exemptions:
- Strata corporations which have four or fewer units; and
- Strata corporations which have more than four units but exempt themselves through an annual ¾ vote. If such a resolution is passed, the deferral would be valid for a maximum of 18 months, and the resolution would then need to be repassed in order to continue to defer the report.
Who Should Prepare This Report?
The regulation does not specify qualifications. The legislation leaves it up to the strata corporation to select a qualified person and requires that the depreciation report include the person’s qualifications, whether the person has errors and omissions insurance and the relationship between that person and the strata corporation. Typically, an engineer or architect may be chosen.
What Does the Depreciation Report Cover?
1) An onsite inspection and inventory of common property and building systems such as the building’s structure; exterior - including roofs, decks and doors; the building systems such as electrical, heating and plumbing; utilities such as water and sewer, parking and landscaping.
2) A schedule of anticipated maintenance, repair and replacement costs for common expenses projected over 30 years which includes potential interest and inflation rates.
3) A financial forecasting section which contains anticipated maintenance, repair and replacements costs and at least three cash flow funding models for the contingency reserve fund.
Timing Requirements for Strata Properties
There are different timing requirements for obtaining the first depreciation report depending on when the strata corporation was formed.
For strata corporations formed on or before December 14, 2011, a depreciation report is required by December 13, 2013.
For strata corporations formed after December 14, 2011 a depreciation report is required within six months after their second AGM.
Once prepared, the depreciation report is valid for up to three years, after which it must be updated.
The most recent depreciation report, if any, must be attached to the Form B (the Information Certificate).
The depreciation report is an official document and may be used to determine a buyer’s qualifications for a mortgage from a lender, to establish risk for insurers such as CMHC and for buyers to determine their future liabilities before they decide to make an offer to purchase. These reports establish long term planning for common property and common assets to determine:
a) What assets you own (an inventory);
b) The asset condition (evaluation);
c) When things need to be replaced (the anticipated maintenance, repair and replacement);
d) How much money you currently have (contingency reserve report);
e) What it is likely to cost for future replacement (a description of the factors and
assumptions in projecting costs);
f) How the costs are going to be paid.