The Depreciation Report, what are they & do we need them?
Normally one can approach new regulations with a certain level of skepticism; so often we find them ineffective and just a costly impediment to conducting ones business. They are often created for the sake of a silly lawsuit that happened somewhere, sometime (Susie fell and broke her arm… Again, but let’s make this time your fault!).
However, I can say with confidence that depreciation reports are the best thing to happen in the regulation of Strata corporations in a very long time.
Strata corporations in British Columbia need to obtain depreciation reports every three years unless they hold an annual 3/4 (three quarter) vote to exempt or have four, or fewer, strata lots. There are different timing requirements for 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 6 months after their second AGM.
Depreciation reports help strata corporations, including bare-land strata corporations, plan for the repair, maintenance and replacement of common property, limited common property and common assets over a 30 year period.
The report must contain:
▪ A physical inventory of the common property and assets.
▪ Anticipated maintenance, repair and replacement costs for common expenses projected over 30 years.
▪ A financial forecasting section with at least three cash flow funding models. Depreciation reports provide useful information to strata lot owners,
prospective purchasers, mortgage providers and insurance companies.
Depreciation reports are also known as reserve fund studies in other jurisdictions and have been a standard requirement in most Canadian provinces.
Although Strata corporations can elect to exempt themselves from conducting the report, I would see this soon becoming a recognized disadvantage. Who would prefer to know the ages of components in a given building, remaining economic life and estimated costs of maintenance or replacement – I would think, all hands go up!