As you probably know by now, depreciation reports are now mandatory in BC, and all strata corporations with 5 or more units are required to have one in place by July 1, 2026.
With the deadline fast approaching, many strata corporations are having these done in time to meet the requirements, and it’s not uncommon for buildings to discover that they are severely underfunded. The depreciation report may indicate that you need a new roof, podium membrane, pipes, and an elevator, all before their expected end of life in 2030. Tally it all up, and the strata corporation may need to raise $2m within the next 5 years. That’s all well and good, but what if you only have $100,000 sitting in your CRF? How are you supposed to come up with the $1.9m shortfall. Quick math tells you that $1.9m across the 30 owners in your building works out to around $60k/ unit? How are owners who are barely scraping by in Vancouver supposed to come up with $60k each???
This situation is all too common, and if it sounds familiar, don’t panic just yet!
Here are a couple of action steps regarding your depreciation report:
1. Take the depreciation report with a grain of salt. Just because it says that you will need a new roof in 5 years, doesn’t mean that you necessarily will! The report is taking the average life expectancy of a roof, and using that in their model. Your roof, if regularly maintained, may last another 10 or 15 years, so be sure to have experts provide you with more accurate estimates.
2. Create a 5 year capital plan! The strata council should create a detailed plan on what actually is going to be required over the coming years.
3. Increase your CRF contributions or propose annual special levies to figure out how you are going to raise the funds. $60k over 5 years is only $12,000/ year, which is much easier to bite off in small chunks.
4. Give owners plenty of warning. No one likes surprises, so it’s important to minute what levies are going to be expected over the next 5 years. This will force everyone to start saving, and buyers won’t be caught off guard either.
5. Look at alternative options. Strata loans are available, or owners can refinance their own unit using their equity to generate the required funds if given enough lead time.
If you’re facing a similar situation after obtaining your depreciation report, then don’t panic, but don’t ignore it either. Come up with a plan, and keep the owners in the loop to avoid surprises.
Reach out to us here if you are looking for some advice regarding your depreciation report!