The hidden costs of avoiding depreciation report

Dear Condo Smarts: What happens if a strata corporation exempts itself from the requirement for a depreciation report, but a buyer cannot get a mortgage as a result?

I have been trying to sell my unit for the past seven months with no luck. Our building is 36 years old, and while it has been fairly well maintained, we have never had any major upgrades or renewals other than our roof, although we are expecting a few major items to be repaired, such as our elevator and piping.

The argument that our owners made at our AGM in July was that if we had a depreciation report done, it would come back poorly because we have so much work ahead of us, and that it would affect our property values. As a result, the vote to exempt passed.

The result we have now is that buyers and mortgage providers are shying away because we don’t have a report, and people are concerned we are concealing something. One of the buyers I spoke with said at the very least, she would like some comfort in knowing when some of the major projects are coming and the estimated costs. At least then she could manage her purchase and budget.

I wrote this in hopes that strata corporations seriously consider the repercussions before they exempt themselves from the depreciation report requirement, before the Dec. 13 deadline.

Elaine B., Victoria

Dear Elaine: There may be some extraordinary circumstances why a strata corporation considers waiving the requirement for a report. For example, the Strata Property Act and Regulations exempt strata corporations of four units or less, but if you are in a five-unit bareland strata, with no common property other than a roadway, the cost of a report and updates every three years could exceed the long-term cost of road maintenance.

Alternatively, you could be a five-unit bare land with a common clubhouse, swimming pool, gardens and extensive in-ground services, underground parking and central boiler, and the common assets would all require detailed long-term planning for maintenance and renewals.

It is easy to understand the apprehension of people in older buildings regarding their depreciation reports, but deferring the inevitable only results in greater negative impacts.

Depreciation reports are not just about the present condition, life expectancy and cost of common property and assets. The report process includes an actual on-site review of the condition of your building assets, recommendations for inspections and maintenance cycles and the financial estimates, so your strata corporation can start planning for the future.

I have visited a number of 35-year-old-plus buildings this summer that have conducted major upgrades and commissioned their reports, and the results are surprising. For some, the initial report has been a shock but, for the first time in decades, they have a starting plan that they can manage economically. They have prioritized the renewals, started an inspection and estimation process and have taken control of their building.

A 35-year-old building is likely due for some major upgrades, regardless of annual maintenance, but knowing what and when is the key to addressing your building issues.

A depreciation report is the first step for a strata corporation. Once you have the report in your hands, your next step is to establish schedules for annual maintenance and inspections, to ensure you have the funding planned in your annual budget, and to conduct the annual servicing requirements. It is no mystery to anyone that if you routinely inspect, maintain and service your car, it will last longer and operate more efficiently. The same applies to buildings.

Elevators, boilers and water delivery, electrical vaults, sumps, ground drainage systems, roofing, decks, balconies and patios, window and door systems, parking garages and clubhouse facilities all require regular, scheduled maintenance and inspection. Yes, the costs will seem steep at first, but over time your strata will be able to control the costs and manage your asset more effectively.

This fall, one of the Condominium Home Owners Association seminars addresses what to do after your strata receives a report. Make the most of your report and develop an operations plan. Go to choa.bc.ca for details and to register.

Source: The Victoria Times Colonist