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Condominium Home Owners’ Association of British ColumbiaLeadership, Education and Resources for strata owners across BCWebsite: www.choa.bc.ca / Toll‐free: 1.877.353.2462Bulletin: 400‐007 (Updated September 1, 2017)What you need to know: Depreciation ReportsWhat is a depreciation report?A depreciation report identifies the common property,common assets and those parts of a strata lot thestrata corporation by bylaw must repair andmaintenance. The depreciation report will determine:1) What assets a strata corporation owns (aninventory)2) The assets conditions (evaluation)3) When items need to be replaced (theanticipated maintenance, repair andreplacement)4) How much money the strata corporationcurrently has (contingency reserve report)5) What it is likely to cost for futurereplacement (a description of the factorsand assumptions in projecting costs)6) How the strata corporation can pay for thecosts (three cash‐flow funding modelsprojecting 30 year replacement periods)discharge the strata corporation from the obligation torepair and maintain common property and commonassets as required by the SPA.If the strata corporation fails to approve a 3/4 voteresolution the strata corporation has six months tocomply with the legislation and have a depreciationreport completed.What steps can a strata corporation take before theyhire a qualified person to obtain a depreciationreport?To save costs and coordinate an efficient and accuratedepreciation report a strata corporation may want togather all of its records and documents, includingfollowing: Strata corporations in British Columbia are requiredunder the Strata Property Act (SPA) to obtain adepreciation report. The Strata Property Regulationsprovide the framework for the information required inthe report, the requirement that the physicalcomponent inventory and evaluation be based on anon‐site visual inspection, financial forecasting thatmust include at least three cash‐flow funding models,the definition of who is qualified to provide the report,and timing requirements for the report.Strata corporations with fewer than 5 strata lots areexempt from the requirement to obtain a depreciationreport.Strata corporations may waive the requirement toobtain a depreciation report by annually passing a 3/4vote resolution. However, being exempt or waivingthe requirement for a depreciation report does not Name and contact information for the stratacorporation’s depreciation report contactpersonName and contact information for the stratacorporation’s treasurerAnnual operating budgetCurrent balance sheet, including thecontingency reserve fund (CRF) balance andany investments & assetsList of future expenditures to be made to CRFthat have been approved but not spentDescription of common problemsCopies of invoices relevant to operations,repairs and maintenanceCurrent insurance certificates and insuranceappraisalsAny reciprocal easements/ServiceAgreements/Air Parcel AgreementsAny leases and licenses (enter phone systems,parking garage use, etc.)Any agreements granting third party use andaccess of the strata propertyThis publication contains general information only and is not intended as legal advice. Use of this publication is at your own risk. CHOA, theauthor and related entities will not be liable to you or any other person for any loss or damage arising from, connected with or relating to theuse of this publication or any information contained herein by you or any other person. The contents of this publication may not be reproduced,blogged, or distributed in any fashion without the explicit prior consent of the writer.
Page 2 of 8Bulletin 400‐007 Prints, plans and drawings – architectural,structural, mechanical, electrical, fireprotection and other systemsAny previous investigation reports:maintenance, repair, building envelopecondition assessment, etc.Annual fire inspection reportMaintenance contracts, logs and manuals formechanical, electrical, elevator, building, etc.History of repairs and replacement of commonpropertyRegistered strata plan & any amendmentsRegistered bylaws & any amendments,including bylaws where the strata corporationhas taken responsibility for the maintenanceand repair of part of a strata lotAny information & bylaws relating to sectionsAny registered allocations of limited commonproperty (LCP)Any alteration agreements where an ownerhas taken responsibility for the cost of themaintenance or renewal of an alteration to astrata lot, common property or commonassetsLawsuits or arbitration decisions that impactproperty use, requiring the maintenance andrepair of certain assetsCopy of any previous depreciation reportIn the absence of some documents, the qualifiedperson preparing the depreciation report will need tomake some reasonable assumptions. For smallerstrata corporations your document requirements maybe limited; however, at a minimum, your depreciationreport planner will need a copy of the registered strataplan, all registered bylaws and any conditionassessment reports will be important for the initialstages of the proposals and planning.To simplify the depreciation report process, and toassist with accurate long‐term archiving of documents,it is recommended documents, including the largescale drawings, be scanned into electronic format ifpossible to use when preparing the depreciationreport.Who is a “qualified person” to develop a depreciationreport?Strata Property Regulation (Regulation) 6.2(6) broadlydefines who is qualified to develop your depreciationreport. A “qualified person” means any person whohas the knowledge and expertise to understand theindividual components, scope and complexity of thestrata corporation’s common property and commonassets. Including those parts of a strata lot or limitedcommon property, or both, that the strata corporationis responsible to maintain or repair under SPA, thestrata corporation’s bylaws or an agreement with anowner. The qualified person must prepare adepreciation report that complies with section 6.2(1)to (4), of the Regulation.Hiring a qualified person is important as various thirdparties will be relying on the information contained inthe report.Depreciation reports provide strata corporations witha legislated planning tool for renewals, maintenanceand financial planning. The report may become asignificant document in assessing property asset valueand must be disclosed with the Information Certificate(Form B). It is important to note that the stratacorporation must retain a copy of the depreciationreport under section 35 and make it available ifrequested at any time under section 36 of the SPA.The report may be used by insurance providers,mortgage providers, mortgage insurers, and most ofall, buyers. This is an official report, and may be usedto determine a buyer’s qualification’s for a mortgage,to establish risk for insurers, and for buyers todetermine their future liabilities before they decide topurchase a strata lot. Throughout all of thesetransactions third parties are relying upon theinformation in the depreciation report which couldresult in potential liability for the strata corporationwith respect to the accuracy and reliability ofinformation in the report.
Page 3 of 8Bulletin 400‐007What is the duty of the qualified person preparingthe report?The person preparing the report must disclose in thereport their qualifications, their relationship with thestrata corporation and whether or not they carryerrors and omissions insurance, as well as adescription of that insurance. Their qualifications havea direct link to their duties under the regulations. Thequalified person will be required to: Provide an inventory of the strata corporation’scommon property, common assets, and anylimited common property or part of a strata lotthat the strata corporation has a duty to maintain,repair and renew.Provide an evaluation of the inventory byperforming a physical review of the site and thecomponents.Provide an evaluation that addresses the followingrequirements:o Estimate the service life of the assets overthe next 30 years,o The anticipated maintenance, repair andreplacement costs that usually occur lessthan once per year,o Evaluation of the components (the currentcondition),o Financial evaluation of the factors andassumptions used in estimating the costsover the 30 year period,o A description of how the CRF is currentlybeing funded, along with a currentbalance, minus any expenditures thathave been approved but not yet takenfrom the fund, ando At least three cash‐flow funding modelsfor the CRF relating to the maintenance,repair and replacement over 30 years.What skills will be necessary for the person / team /company providing the report? The ability to read and interpret technicaldocuments and drawings.The education, experience and knowledge to beable to conduct on‐site inspections of buildingcomponents and provide a reliable assessment oftheir condition and remaining life expectancy. A knowledge of building systems, building codes,plus an understanding of material defects, productcompatibility, product availability and newtechnologies.An understanding of the structure and governanceof strata corporations and their legislatedobligations for maintenance, repair andreplacement of components.An understanding of the application of stratacorporations that have duly constituted sections,air parcel agreements, and multiple stratacorporations that share joint facilities.An understanding of the financial obligations ofstrata corporations for annual budgets, CRF andspecial levies.The ability to financially project and prepare atleast three different cash‐flow funding modelsover 30 years.Who do you hire to prepare a depreciation report?The following professions may have the skills andqualifications necessary to prepare a depreciationreport: A person who is a registered professional engineerwith the Association of Professional Engineers andGeoscientists of B.C.,A person who holds a certificate of practice withinthe meaning of the Architects Act of B.C.,A person who is a member of the Real EstateInstitute of Canada and holds the designation of aCertified Reserve Planner (CRP),A person who is a member of the AppraisalInstitute of Canada,A person who is a member of the CanadianInstitute of Quantity Surveyors and holds thedesignation of professional quantity surveyor, andOther persons who meet the qualifications andskills required by the Regulations.Preparing a depreciation report requires technical,financial planning, and management skills. This type ofexpertise may be difficult to find in one individual.Depending on how complicated and extensive yourstrata corporation is, this may mean your depreciationreport is prepared by a team of professionals ratherthan an individual. As part of finding the right personto conduct the depreciation report for your strata
Page 4 of 8Bulletin 400‐007corporation, it is recommended that a stratacorporation: review the experience of the person/company,obtain references,determine the ability to provide errors andomission insurance,review samples of past reports completed,request a copy of their professional liabilityinsurance to verify current status and coverage,andany other relevant documentation that attests tothe knowledge and competency of theperson/company.How long will it take to complete a depreciationreport?The size, age, availability of documentation and thecomplexity of the common assets and commonproperty of the strata corporation will have a directimpact on how long it will take for a depreciationreport to be completed. However, it is important thatthe strata corporation negotiate the time frame forcompletion before work begins and ensure protocolsare in place if the time frame needs to be adjusted.For example, who to contact (council member orstrata manager) and how (by email or phone call).What things should a strata corporation considerprior to engaging a depreciation report planner?Before a strata corporation engages a depreciationreport planner it is important that the stratacorporation ask and understand the answers to thefollowing questions: How will the final report be delivered to the stratacorporation (electronically, paper format, both)?Will the depreciation report planner attend aninformation session with owners to explain thereport? Will this cost extra?If the strata council determines changes arerequired to the depreciation report, how arechanges to be addressed? How long will it take to get changes back from thedepreciation report planner? How much time doesthe strata corporation have to request changes bemade? For example, the strata corporation mayonly have 1‐2 months to review the report andrequest changes or they may be charged anadditional fee to incorporate the changes.Get the service agreement in writing.Do the Regulations permit a strata corporation toconduct their own depreciation report?The regulations do not prohibit a strata corporationfrom preparing their own depreciation report.However, a strata corporation must consider therequirements of SPA and the Regulations and anypossible liabilities before conducting a depreciationreport without a qualified person. A person (whenapplied also means the consulting company or groupof certified professionals who make the proposal) isgoing to be identified as providing the report. If thestrata corporation provides their own report, then itmust be disclosed in the report that the informationhas been provided by the strata corporation, and/orspecific individuals. The report must also disclose whothe person(s) is, the liability, qualifications andcompetency of that person.Remember that the depreciation report imposes alevel of liability on the strata corporation for accuracyas it is relied on by insurance providers, mortgageproviders and mortgage insurers, and most of all,buyers. This is an official report. It may be used todetermine a buyer’s qualification’s for a mortgage, toestablish risk for insurers, and for buyers to determinetheir future liabilities before they decide to purchase astrata lot. Throughout all of these transactions, thestrata corporation is exposed to liability.If a strata corporation prepares their own report,how does a strata corporation manage the liabilitiesof possible inaccurate information or errors inreporting information?Ultimately, the strata corporation and the person(s) inthe strata corporation who prepare the depreciationreport are left with the complete scope of liability andno recourse against a third party. If there is an error,resulting in an action for damages against the strata
Page 5 of 8Bulletin 400‐007corporation, does the strata corporation have anycoverage under the directors and officers’ liabilityinsurance with respect to having provided thisservice? Every insurance policy has unique terms,conditions and exclusions. It is strongly suggested thatbefore a strata corporation ventures into creating andproviding a depreciation report, they contact theirinsurance broker to determine the extent of coverage,if any, under these conditions.Who makes the decision to provide your ownreport?Before a strata corporations proceeds with preparingtheir own depreciation report, it needs to consider ifthis has been a decision of the strata council or theowners at an annual or special general meeting. Arethe owners aware that they are assuming liabilitiesbefore they make this decision? Remember the SPArequires council members to exercise the care,diligence and skill of a reasonably prudent person incomparable circumstances. However, these conditionsare not likely that of a volunteer given the conditionsset out by the regulations.Can a strata corporation be exempt from the needfor a depreciation report and what are theimplications of such a decision?Strata corporations of five or more units are requiredto obtain a depreciation report. However, a stratacorporation of five or more units may waive therequirement, if the strata corporation annually passesa 3/4 vote at an annual or special general meeting.This will require the strata corporation to include theexact wording of the 3/4 vote resolution with thenotice package of the general meeting and include iton the agenda. The strata corporation minutes willthen reflect the results of the 3/4 vote.However, before a strata corporation considerswaiving this requirement, consider the implications.Depreciation reports are going to be a widely usedtool to manage risk for buyers purchasing in a stratacorporation. A buyer and their mortgage provider ormortgage insurer may have a keen interest in adepreciation report. Therefore, the absence of areport may make it more difficult for an owner to selltheir strata lot as financial institutions may bereluctant to lend if possible special levies and otherfuture costs are unknown. Also, buyers will be usingdepreciation reports to determine the accuracy of theasking price. The absence of a depreciation report mayimpose restrictions on the property that may limit theability of an owner to sell their strata lot.What happens if a strata corporation fails to pass a3/4 vote to waive the requirement to obtain adepreciation report?If a vote to waive the requirement to obtain adepreciation report fails, the strata corporation has sixmonths to complete a depreciation report. Generally,strata corporations will vote to waive the requirementfor a depreciation report at an annual general meetingand every annual general meeting thereafter.What time lines apply to depreciation reports?Strata corporations must renew their depreciationreport every three years. However, the stratacorporation could alternatively waive the requirementto renew their depreciation report.Strata corporations that have waived the requirementto obtain a depreciation report, by a ¾ vote, mustobtain a depreciation within 18 months from the datethe resolution was passed. The 18 month timeframeallows six months to complete a depreciation report ifan exemption passes one year but fails at the nextannual general meeting or special general meeting.Remember that strata corporations may continue towaive this requirement with an annual ¾ vote of theowners at an annual or special general meeting.Strata corporations are reminded that they mustinclude a copy of the latest depreciation report withthe Form B. If the strata corporation passes a ¾ voteresolution to waive the requirement to renew adepreciation report the strata corporation will need toprovide the old depreciation report with the Form Bwhich may be outdated and inaccurate.Strata corporations that are formed after December14, 2011, are required to obtain a depreciation reportwithin 6 months after their second annual generalmeeting.
Page 6 of 8Bulletin 400‐007How often does the depreciation report need to berenewed?The SP regulations require the depreciation report berenewed obtained every three years. Subsequentreports may be less expensive than the originalbaseline report as most of the information andmodeling will only require updating. However, therenewed report must still include on‐site visualinspections and cover at least 30 years from thecurrent date. Be aware that, in addition to your assetshaving aged since the last report, interest rates,inflation rates, and the cost of items and labour willlikely have changed.Some experts advise that depreciation reports shouldcover the entire expected life of the building ratherthan the minimum 30 years required. Such a reportmay be no more expensive and would give the stratacorporation better information to use in planning,saving and equitably allocating costs between presentand future owners.How do we pay for a depreciation report?A strata corporation may pay for a depreciation reportas an operating expense, by an expenditure madefrom the CRF or by a special levy. Recent legislativechanges to section 92 of the SPA clarify that paying forand accruing funds to pay for a depreciation report isnow an operating fund expense. This expense maynow be included in the annual budget therefore isapproved by a majority vote or section 96 now allowsstrata corporations by a majority vote to approvespending money from the CRF in order to obtain adepreciation report or pay for repairs specificallyrecommended by a depreciation report.If we are in the process of completing ourdepreciation report, what information do we includewith the Form B?Section 59 of the SPA requires the Form B InformationCertificate disclose specific information about thestrata corporation and the strata lot. Form B’s arecompleted by the strata corporation or stratamanager.Once the strata corporation has received adepreciation report, it must attach the completereport to the Form B. A summary of the report doesnot satisfy the requirements of the SPA.Is the initial report received by the strata corporationa “draft report” until all owners approve the report?The SPA and the Regulations do not refer to or use theterm draft report in the legislation. Therefore, when areport is received it is subject to the disclosurerequirements of SPA sec 35 and 36. The legislationdoes not require the owners to approve the report.Ultimately, it is the strata council that reviews thereport. The strata council may request changes ifinaccuracies are found.What should council do with the depreciation reportonce it is received?Once the report is received by council, it is up tocouncil to review it carefully for accuracy andinterpretation of the strata plan and bylaws. It isimportant to note that the depreciation report is notrequired to be approved by the owners. Check thatyour reports includes: includes a summary of the report (this can beincluded with the annual budget reports tohelp owners understand the fundingrequirements)discloses the qualifications of the depreciationreport planner/team/companyidentifies the relationship between thedepreciation report planner and the stratacorporationdiscloses if the depreciation report plannerhas errors and omissions insurance and adescription of that insurance
Page 7 of 8Bulletin 400‐007 includes a complete inventory of all the stratacorporation’s common assets, commonproperty and any limited common property orpart of a strata lot that the strata corporationhas a duty to maintain, repair or renewprovides an evaluation of the inventoryestimates the service life of the commonproperty and common assets over the next 30yearsincludes a description of how the CRF iscurrently being funded, along with the currentbalance, minus any expenditures that havebeen approved but not yet taken from thefundincludes at least 3 cash‐flow funding modelsfor the CRF relating to the maintenance, repairand replacement of common property andcommon assets over 30 yearsdetails financial evaluation factors andassumptions used in estimating the cost overthe next 30 yearsThe depreciation report will give the stratacorporation a clear picture on what is requiredfinancially and operationally in the coming years tomaintain the strata corporation. The depreciationreport will help strata corporations plan for annualand long term repairs, maintenance and renewals. Itwill also disclose the financial obligations requirednow and in the future. However, it is up to the ownersof the strata corporation to decide annually onfunding and operations.It is important that owners are provided a copy of thereport and that the depreciation planner deliver thereport to owners at an information meeting. This willensure that owners are well equipped to make betterinformed financial and operational decisions. It issuggested that the depreciation report beincorporated into the strata council operating manualand be attached to annual notice packages for eachannual general meeting.What if the strata council does not agree with whatthe depreciation report provides?Once the depreciation report is received, even if thecouncil does not agree with the depreciation report, itforms part of the strata corporation’s records. It mustbe attached to any Form B Information Certificates orany request from an owner until the time an updateddepreciation report is completed.What if the owners do not agree with the three cash‐flow funding models provided in the depreciationreport?The cash‐flow funding models are just examples. Astrata corporation may consider other formulas. Thepurpose of the three cash‐flow funding models is toassist strata corporations in understanding the impactof different levels of funding on reserves and how theywill apply to the frequency of future special levies. Thedecision on funding is up to the strata corporationeach year as part of the approval of its annual budget.It is much easier for the owners to approve an expensefrom the contingency reserve fund than to have to payfor large special levies. Therefore, it is important for astrata corporation to begin funding the depreciationreport as it will take a combination of increased longterm funding and some special levies to ensure thestrata corporation is fully funded.Remember that strata corporations approve operatingexpenses on an annual basis as part of the annualbudget approval process. Therefore, this is the perfecttime for strata corporations to discuss maintenanceand renewals and make adjustments to funding asdecided by the majority of the owners.Is there a limit on how much money we cancontribute to the contingency reserve fund?No, there is no limit how much money can becontributed to the CRF. Strata corporations controltheir long term planning by addressing CRFcontributions as part of their annual budget. Giventhat it is part of the annual budget a majority vote ofthe owners at the annual general meeting willdetermine the contribution amount for that fiscalyear. Strata corporations may use a funding model
Page 8 of 8Bulletin 400‐007provided in the depreciation report or consider analternative funding model to bring their contingencyreserve levels up to an appropriate level for theirstrata corporation. Planning for the financial future ofthe strata corporation will include investingappropriately to ensure that amortization of funds atleast equals inflation rates. For more information oninvesting please refer to CHOA’s investing guide.How do we pay for repairs or renewalsrecommended in a deprecation report?The way that strata corporations pay for repairs andrenewals has not changed; they may either raise fundsthrough operating expenses, a special levy or usefunds from the CRF. What has changed is that thelegislation now only requires a majority vote of theowners to spend CRF if the depreciation reportrecommended the renewal or maintenance.However, a strata corporation may only takeadvantage of the majority vote if the CRF has enoughmoney to fund the renewal or maintenancerequirement and is approved by a majority voteresolution at a general meeting.If your strata corporation is proactively saving pleaserefer to CHOA’s investment guide for information onhow funds may be invested.What information needs to be in the resolution tospend funds from the contingency reserve fund?If the strata corporation is spending funds from theCRF by a majority vote it is strongly suggested that theresolution be detailed enough to ensure the stratacouncil has the authority to spend the funds and enterinto the required contracts. In addition, it may beimportant for the strata to seek legal advice on theresolution. An example of a resolution to approve aCRF expenditure is as follows:SAMPLE – Resolution to Approve CRF Roof ExpenseThe Owners, strata plan ABC1234, by majority vote,hereby authorize an expense of up to (amount) forthe renewal of the (blank roof area) as recommendedin the current depreciation report. Include: For this reason it is recommended strata corporationsproactively contribute to CRF. It is easier to pass amajority vote to draw funds from the CRF versus a ¾vote to approve a special levy and will incur lesshardship on the owners and reduce the pressure andcost on a strata corporation to collect unpaid speciallevies. description of project;consulting such as inspection, engineering, andlegal services;detail complete scope of services for all workauthorizeestimates to approve the amount required forcompletion.time frame for the projection completionIf your strata corporation requires a special levy undersection 108, consult a lawyer in the writing of theresolution to confirm the resolution complies with theAct & Regulations.
Condominium Home Owners' Association of British Columbia Leadership, Education and Resources for strata owners across BC Website: www.choa.bc.ca / Toll‐free: 1.877.353.2462 . protection and other systems . all, buyers. This is an official report, and may be used .
