Last December a new B.C. government directive went into effect, requiring condo buildings to prepare a depreciation report that gives prospective buyers details about expected long-term expenses or problems.
Despite the new rule, only about one quarter of the stratas across the province have commissioned depreciation reports so far, reports The Surrey Leader. Strata councils can choose to be exempt from this requirement if more than three quarters of the council members vote to do so. Councils can remain exempt if they re-vote every 18 months and pass by the required 75 per cent. Of the buildings that have commissioned one, some are still waiting for the report to be completed.
So, if you're a prospective condo buyer, does the lack of a depreciation report signal trouble?
Remember, depreciation reports can be costly to commission, so not all strata councils are eager to spend the money. In my own strata, we keep voting to push it off because we have already done a similar report and put a plan in place to increase our contingency fund.
In some buildings, the strata council may feel it's not necessary because it believes the structure is in good shape. On the other hand, a strata council may decide against a deprecation report because it knows the contents could turn off potential buyers. In rare cases, a mortgage lender may require a depreciation report or, in the absence of one, it may charge a higher interest rate to cover what it perceives as a higher risk.
While it may give you peace of mind to read in a depreciation report that the building is not expected to need a new elevator for at least another decade, depreciation reports are only one document to consider. (And, of course, that's only an estimate. That elevator could break down tomorrow.)
As a buyer, you should be reviewing all engineering or maintenance reports as well as the strata financials, especially the size of the building's contingency fund. If a strata lacks a healthy contingency fund, it potentially boosts the likelihood that owners will have to pay a special assessment when costly maintenance issues arise.
While a strata council may choose to opt out of commissioning a depreciation report, the council is still required to provide prospective buyers with other documents such as the minutes from the previous year's strata council meetings. These can seem boring and mundane, but it's a good idea to go over what was discussed and what may be coming up. Your real estate agent should request these documents for you.
As a mortgage broker, I also recommend hiring an inspector to examine the condo unit and the building. When you purchase a unit in a condo building, you are not just purchasing private living space, but also a share of the building. Your inspector should test out appliances and plumbing in your unit, and should also assess the building's condition, including the exterior, parkade, and common spaces (if applicable) and prepare a written report detailing his or her findings. Problems outside your unit such as leaks or a cracked foundation can cost big bucks to repair, often resulting in a special assessment and catching some owners off guard financially.
So while a depreciation report can be helpful in assessing the condition and stability of a building, the lack of one isn't necessarily a deal-breaker.