Depreciation Reports/Reserve Fund Studies
As of December 14th, 2011, an amendment to the Strata Property Act (SPA) was passed, requiring strata corporations to obtain deprecation reports by no later then December 14th, 2013, unless the owners of the corporation waive this requirement by way of a ¾ vote resolution at a general meeting. Strata corporations with less than 5 strata lots are exempt from this requirement.
A depreciation report (otherwise known as a reserve fund study) is a report which, under the SPA, must contain: a physical inventory of all common property, including building systems; anticipated maintenance, replacement and repair costs of the common property and assets of the corporation projected for 30 years; and a financial forecasting section containing at least three cash flow funding models for the Contingency Reserve Fund (CRF). Under the SPA, strata corporations are required to obtain an update to the report every three years.
A typical report will examine some of the following building components – the building structure (wall components, siding, stucco, rain screen systems), building exterior (roofing, decking, doors and windows), interior building systems (electrical, mechanical, heating, fire systems, common amenities), pools, spas, exercise rooms, guests suites, parking facilities and roadways, landscaping (including pathways, sidewalks, fencing, irrigation), and interior finishes such as floor coverings and furnishings.
The report will include projections to maintain, repair, and replace the above-noted components for a period of 30 years. Calculations for costs and cash flows must include interest rates and inflation rates. The report must show the current balance of the CRF and how it is being funded and include at least 3 cash-flow models for the 30 years.
Under the SPA, the report needs to be dated and the qualifications of the author of the report included, including any (if applicable) relationship to the strata corporation.
The SPA or regulations do not specify who must prepare the report however, the person or team preparing the report must:
• Understand the scope and complexity of the common, limited common property as well as common assets, including their expected life expectancies, current conditions and replacement costs.
• Provide the required financial forecasting as per the SPA.
• Understand the strata corporation’s bylaws and any agreements that may exist with strata lot owners in regards to maintenance of common and limited common property.
Often persons performing the reports will include engineers, architects, appraisers, quantity surveyors, etc.
Once the report has been completed and finalized it forms part of the required documents a strata corporation needs to retain under section 35 of the SPA. As such, reports (most recent) will need to be included with a Form B (information certificate) when requested.
WRM will work with strata councils in preparing scopes of works for the reports and obtaining proposals from qualified suppliers knowledgeable of the requirements of the SPA.