Why are depreciation reports important?
Depreciation reports or reserve fund studies are needed by Strata’s in BC to help strata boards determine if they have enough capital in their reserve fund to manage their common assets in the long term. Owners of strata units are 100% responsible for the inside of their condos’ and partially responsible for the common property. Common property refers to the foyer, parking lots, swimming pools, elevators, and the building exterior. Typically, your strata fees cover both operating funds like cleaning the hall ways and elevators, but they should also be used for replacing the elevator once it has reached the end of its usable life. According to a recent Huffington Post article, about 75% of strata’s in BC don’t have a depreciation report. Without a depreciation report you don’t know if the strata has the adequate funding to cover the long term needs. A current depreciation report give you the ability to do long term planning so that you have:
1. Asset Protection – Your property has the funds a sufficient contingency fund will have higher values because you have adequate capital to maintain the common property. Moreover, it will reduce the stress of having to unforeseen special assessments for your strata members.
2. Lower Operating Costs – When you replace building components at the right time you reduce your maintenance cost because you don’t pay the high cost of emergency repairs.
3. BC Strata Regulations – The regulation mandates that your strata has a thirty-year depreciation report, and that it is updated every three years.
Moreover, new purchasers of condos can request a depreciation report from strata boards as a part of their purchase process. It may be wise for strata boards to begin to invest a depreciation report so that they can demonstrate they are committed to managing the common asset in the long term as well as the short term.
Depreciation reports may be one important aspect that buyers will need before they consider buying a condo in your strata complex. Looking at the Capital Reserve Fund and it’s ability to cover upcoming costs is an important consideration before purchasing a condo. Get informed, request your strata get a depreciation report.
