Strata Corporations will have until December 13, 2013 to obtain a depreciation report or hold a ¾ vote to exempt. Strata Corporations will have 18 months from the time a ¾ vote expires to get a depreciation report.

Please refer to section 94 of the Strata Property Act:

Depreciation report

94      (1) In this section, “qualified person” has the meaning set out in the regulations.

(2) Subject to subsection (3), a strata corporation must obtain from a qualified person, on or before the following dates, a depreciation report estimating the repair and replacement cost for major items in the strata corporation and the expected life of those items:

(a) for the first time, the date that is 2 years after the coming into force of this section;

(b) if the strata corporation has, before or after the coming into force of this section, obtained a depreciation report that complies with the requirements of this section, the date that is the prescribed period after the date on which that report was obtained;

(c) if the strata corporation has, under subsection (3) (a), waived the requirement under this subsection to obtain a depreciation report, the date that is the prescribed period after the date on which the resolution waiving the requirement was passed.

(3) A strata corporation need not comply with the requirement under subsection (2) to obtain a depreciation report on or before a certain date if

(a) the strata corporation, by a resolution passed by a 3/4 vote at an annual or special general meeting within the prescribed period, waives that requirement, or

(b) the strata corporation is a member of a prescribed class of strata corporations.

(4) A depreciation report referred to in subsection (2) must contain the information set out in the regulations.

Depreciation reports must include an onsite visual inspection and are to be updated every three years and must estimate the repair and replacement costs for major items in the strata corporation and the expected life of those items. In other words, a long range financial planning tool that identifies the current status of the capital reserves, integrates operational schedules for property maintenance and planning and provides a funding plan. Therefore, the report should include the following:

• An inventory of your assets;
• The evaluation of the assets;
• Replacement timeline;
• The current status of the Contingency Reserve Fund;
• Cost of future replacement and;
• Funding models; three cash flow models projecting 30 year replacement periods.

Strata Corporation’s are encouraged to obtain a report performed by a qualified individual with proper liability and errors and omissions insurance coverage rather than opting out as planning is required for each Strata Corporation to protect the common assets. Maintenance is the best way to maintain the building systems and reduce costs. Long term planning and maintenance will prolong the life cycle of the building systems, allow Strata Corporation’s to plan renewals without emergencies and reduce premature failures of systems and costly resultant damage.

Permitting Strata Corporation’s to opt out of a depreciation report with a ¾ vote will not ensure that those strata corporation’s who currently do not perform long term planning and maintenance will do so; this will widen the dividing line between maintained and neglected Strata Corporations.

Furthermore, Strata Corporation owners need to keep in mind that this report will be used by mortgage providers and mortgage insurers and therefore buyers. It may be detrimental to a Strata Corporation not to obtain a report as it may affect the ability of potential buyers to obtain mortgage funding or current owners to obtain refinancing

The new regulation is available from the Province of British Columbia – Office of Housing and Construction Standards. Additional information is available at the Strata.

Property Accountability Regulations | Strata Property Act; updated strata property guides are expected in February 2012.

For help with strata property depreciation reports, contact Ascent Real Estate in Burnaby at 604-431-1800 for professional advice.

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“Should we proceed with a ¾ Vote and exempt from obtaining a depreciation report for our strata property?”

Owners in a Strata Corporation need to look beyond the cost of obtaining such a report and focus on the fact that these reports will be essential and beneficial tool not only for future planning, but for future buyers and financial institutions to consider the risks when purchasing a unit.

Living in a Strata Corporation where all Owners can not only afford their mortgage payments, strata fees, but potential special levies in relation to capital expenditures that are not covered by monthly strata fees and Contingency Reserve Fund contributions will ultimately benefit all those who are members of the Strata Corporation by ensuring property maintenance and renewal occurs.

Without such a report, it will difficult for Owners to sell their units as the cost of future capital expenditures will be unknown.  It will also be difficult for future buyers to assess the actual value of the property.

Contact Ascent Real Estate for help with your property maintenance in Greater Vancouver

Ascent Real Estate has been helping strata corporations with professional, responsive and legally sound strata management services in Burnaby and Greater Vancouver for more than 33 years. Contact Ascent Real Estate at 604-431-1800 for more information.

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Property insurance required for Strata Corporation
149  (1) The strata corporation must obtain and maintain property insurance on
(a) common property,
(b) common assets,
(c) buildings shown on the strata plan, and
(d) fixtures built or installed on a strata lot, if the fixtures are built or a installed by the owner developer as part of the original construction on the strata lot.
(2) For the purposes of subsection (1) (d) and section 152 (b), “fixtures” has the meaning set out in the regulations.
(3) Subsection (1) (d) does not apply to a bare land strata plan.
(4) The property insurance must
(a) be on the basis of full replacement value, and
(b) insure against major perils, as set out in the regulations, and any other perils specified in the bylaws.

Definitions for section 149 of the Act
9.1    (1)  For the purposes of sections 149 (1) (d) and 152 (b) of the Act, “fixtures” means items attached to a building, including floor and wall coverings and electrical and plumbing fixtures, but does not include, if they can be removed without damage to the building, refrigerators, stoves, dishwashers, microwaves, washers, dryers or other items.
(2) For the purposes of section 149 (4) (b) of the Act, “major perils” means the perils of fire, lightning, smoke, windstorm, hail, explosion, water escape, strikes, riots or civil commotion, impact by aircraft and vehicles, vandalism and malicious acts.

Minimum liability insurance
9.2  For the purposes of section 150 of the Act, the strata corporation must obtain and maintain liability insurance for a minimum amount of $2 000 000.

Given this, it is highly recommended that strata lot owners obtain insurance for their strata lot for the following:

• It is extremely important that owners know that the insurance policy for the Strata Corporation does not cover personal belongings in case of a loss.  If personal belongings are damaged from a loss, such as, but not limited to, a water escapement, fire or sewer back up, only a strata lot owner’s personal policy will cover belongings.  Each owner and tenant should purchase insurance coverage for his/her belongings.  Additional living expenses should also be added to a personal policy in case the need to live elsewhere while the strata lot is being repaired arises.

• Owners must ensure they are covered personally for any upgrades to the unit.  The Strata Corporation’s insurance policy only insures original fixtures.  An example of this would be hard surface flooring in a unit that originally contained carpet when constructed.  

• A personal policy should also include a Strata Corporation deductible section in case a strata lot owner, tenant or someone associated with the strata lot causes damage.  Personal insurance policies offer a strata deductible, which then reimburses the deductible imposed by the Strata Corporation on the strata lot owner due to a claim caused by the owner or tenant.  Sometimes this deductible is built into the insurance package and other times it is offered as optional coverage for an additional premium.  It is recommended to review the amount of available insurance coverage for the strata deductible with your insurance broker.  Please refer to your most recent Notice of Call (agenda) for your Annual General Meeting (AGM) to obtain a copy of the Strata Corporation’s insurance policy.

For example, if a strata lot owner, tenant, or individual associated with the strata lot overflows a sink or a bathtub and the Strata Council finds that the owner, tenant or individual associated with the strata lot was the cause of the resulting damages, the Strata Corporation can sue the owner for the insurance deductible.  This amount can be several thousands of dollars.

• All strata lot owners must maintain all items within their own strata lot.  If a leak occurs from these items; the strata lot owner will be responsible for all repair costs or the insurance deductible if a claim is filed.  The below list includes some of these items, but is not exhaustive:

o Tiles and grout on shower and bathtub enclosures;
o Washing machine hose connections;
o Dishwasher connections;
o Fridge water connections for ice makers;
o All visible pipes under sinks;
o Toilet supply lines;
o Toilet seals and;
o All appliances.

• Owners may wish to consider employing a professional contractor to carry out regular inspections and maintenance of these items.

Section 161 of the Strata Property Act contemplates that an owner may obtain his or her own insurance to cover risks that are not covered by the Strata Corporation’s policy.

Owner’s insurance
161  (1) Despite the Insurance Act or any other law, an owner may obtain and maintain insurance for any or all of the following:
(a) loss or damage to the owner’s strata lot and the fixtures referred to in section 149 (1) (d)
(i)  against perils that are not insured by the strata corporation, and
(ii)  for amounts that are in excess of amounts insured by the strata corporation;
(b) fixtures in the owner’s strata lot, other than the fixtures referred to in section 149 (1) (d);
(c) improvements to fixtures referred to in section 149 (1) (d);
(d) loss of rental value of the owner’s strata lot in excess of insurance obtained and maintained by the strata corporation;
(e) liability for property damage and bodily injury, whether occurring on the owner’s strata lot or on the common property.
(2) Despite this Act, the Insurance Act or any other law, an owner of a strata lot in a bare land strata plan may obtain and maintain insurance on buildings or fixtures built or installed on the strata lot.

Additionally, some Strata Corporation bylaws require each strata lot owner to have personal insurance and state that strata lot owners are responsibility for the deductible amount, or any damage up to the deductible amount in the event of a loss. 

Section 158 (2) of the Strata Property Act also provides that the Strata Corporation is permitted to sue a strata lot owner to recover any deductible paid by the Strata Corporation.  Furthermore, some Strata Corporations have adopted bylaws requiring a negligent or careless owner to pay the deductible without the Strata Corporation needing a court order to confirm this negligence or carelessness.

Insurance deductible
158  (1) Subject to the regulations, the payment of an insurance deductible in respect of a claim on the strata corporation’s insurance is a common expense to be contributed to by means of strata fees calculated in accordance with section 99 (2) or 100 (1).
(2) Subsection (1) does not limit the capacity of the strata corporation to sue an owner in order to recover the deductible portion of an insurance claim if the owner is responsible for the loss or damage that gave rise to the claim.

In order to ensure that you have adequate coverage in place, each strata lot owner should provide a copy of the Strata Corporation’s certificate of insurance that is contained in the Notice of Call (agenda) for each Annual General Meeting (AGM). 

Review and report on insurance
154  The strata corporation must
(a) review annually the adequacy of the strata corporation’s insurance, and
(b) report on the insurance coverage at each annual general meeting.

Each strata lot owner is strongly encouraged to obtain proper insurance coverage and ensure that if they have tenants in their unit, that their tenants also obtain adequate insurance.

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The Amendment Act (Bill 12) substantially repealed Section 94 (Strata Property Act, 2009 ) and replaced it with provisions requiring that all existing and future strata corporations obtain a depreciation report.  The report must estimate the repair and replacement costs for “major items in the strata corporation and the expected life of those items”.  These “major items” will be prescribed in the regulations by future order-in-council.

94 (1) The strata corporation may prepare a depreciation report estimating the repair and replacement cost for major items in the strata corporation and  the expected life of those items to assist it in determining the appropriate amount for the annual contribution to the contingency reserve fund.

94 (2) A depreciation report may contain information based on the guidelines for depreciation reports as set out in the regulations and may be in the  prescribed form.

The Amendment Act requires that the report be prepared by “qualified persons”.  It is suggested that this will include accountants, surveyors, engineers and architects among others.

If the strata corporation has not previously completed such a report, they will be required to do so within two years of the coming into force of this provision.  If  a strata corporation has already obtained a report that complies with the provisions, they will not need to obtain a new report at this time, but will need to have updates completed to comply with the  provisions that will be determined. 

The strata corporation can release themselves from their obligation to complete a depreciation report by a resolution passed by a 3/4 vote at an annual or special general meeting, or if the strata corporation is a member of the prescribed class. The prescribed class, according to the legislative record, will include bare land strata developments and small strata developments, i.e. duplexes.

The provincial government has yet to provide a complete definition of the report requirements and it is hoped that it assists strata corporation’s in addressing long term planning and integrated maintenance.  Planning is required for each strata corporation to protect the common asset as maintenance is the best way to maintain the building systems and reduce costs.  Long term planning and maintenance will prolong the life cycle of the building systems, allow Strata Corporation’s to plan renewals without emergencies and reduce premature failures of systems and costly resultant damage. 

Permitting strata corporation’s to opt out of a depreciation report with a ¾ vote will not ensure that those strata corporation’s who currently do not perform long term planning and maintenance will do so.  This will widen the dividing line between maintained and neglected strata corporations and potentially defeat the intent of the Amendment Act (Bill 12).

While the provincial government could remove the word “may” from Section 94 of the Strata Property Act, thus making each strata corporation perform a depreciation report; would these reports actually be utilized, or would they just collect dust on a bookshelf?  Furthermore, is implementation even possible in some strata corporation’s who have insufficient operating and contingency reserve funds?  This is a reality as some buildings have never implemented plans and their capital costs are rapidly increasing, making their building unsellable.

Owners are one of the major obstacles when it comes to funding and undertaking capital projects.  Some owners believe that they pay their monthly strata fee and it covers all strata corporation costs including capital maintenance, while others feel that they will be moving and do not want to pay for improvements that will be enjoyed by others.  In western Canada, property value is traditionally high with strata fees being low. 

If the completion of depreciation was mandatory and a mechanism was provided to make implementation compulsory, it may result in well maintained strata corporations.

Furthermore, simple depreciation reports will not alter much. Capital reserve studies would be more beneficial as it would provide “a long range financial planning tool that identifies the current status of the capital reserves, integrates operational schedules for maintenance and planning and provide a funding plan.” 

Given that the specifics surrounding implementation and requirements have yet to be established; all owners are encouraged to participate in the open public consultation process at http://housing.gov.bc.ca/housing/strata.htm.

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