Strata depreciation report requirements
Under British Columbia’s Strata Property Act and regulations, strata corporations with five or more strata lots must obtain depreciation reports. This includes bare land strata corporations ("strata subdivisions") and other kinds of strata corporations. Strata depreciation reports must meet certain legal requirements.
Strata corporations may also waive the legal requirement to obtain a depreciation report, or defer updating a depreciation report, by passing an annual 3/4 vote.
A depreciation reports tells a strata corporation what common property and assets it has and what are the projected maintenance, repair and replacement costs over a 30 year time span.
Common property is just not buildings. Common property and assets can also include landscaping, roads, recreation amenities and many other items.
The depreciation report helps strata lot owners to protect their homes and investments and provides valuable information to prospective purchasers, mortgage and insurance providers.
Strata corporations must obtain depreciation reports no later than 6 months after their second AGM (Annual General Meeting).
Depreciation reports must be renewed every three years.
Strata corporations may waive the requirement to obtain a depreciation report, or defer a renewal, by passing an annual 3/4 vote.
Six-month grace period: the strata corporation has six months to obtain a depreciation report if an annual 3/4 vote to waive the requirement is not passed.
Transition Period: strata corporations formed on or before December 13, 2011 were given a two year transition period – until December 13, 2013 – to obtain a depreciation report. After this two-year transition period, a strata corporation without a current depreciation report would have to pass a 3/4 vote annually in order to waive the requirement. If a strata corporation had already obtained a depreciation report which met the new requirements, it had three years to obtain another report.
As per Strata Property Regulation 6.2, a depreciation report must have certain content.
Physical Component Inventory and Evaluation: A depreciation report must include a physical component inventory and evaluation of components which must:
- be based on an on-site visual inspection of the site and, where practicable, of the components conducted by the person preparing the depreciation report
- include a description and estimated service life over 30 years of those items that comprise the common property, the common assets and those parts of a strata lot or limited common property, or both, that the strata corporation is responsible to maintain or repair under the Strata Property Act, the strata corporation's bylaws or an agreement with an owner
Items to be reviewed include (but are not limited to):
- the building structure
- the building exterior including roofs, roof decks, doors, windows and skylights
- the building systems, including the electrical, heating, plumbing, fire protection and security systems
- common amenities and facilities (for example: pool, exercise room, guest house etc)
- parking facilities and roadways
- utilities, including water and sewage
- landscaping, including paths, sidewalks, fencing and irrigation
- interior finishes, including floor covering and furnishings
- green building components
- balconies and patios
The list above is not a complete list. And not every strata corporation will have all of the components listed above. For example, some strata corporations have building structures they are responsible to repair and maintain, others do not. Some strata corporations will have water utilities they are responsible to repair and maintain, others do not.
The depreciation report must also identify those parts of the common property and limited common property, if any, that individual strata lot owners are responsible to repair and maintain. For example, patios and balconies that are designated limited common property in a highrise "condo tower".
Financial Forecasting Section: Depreciation reports must also include a financial forecasting section to help the strata corporation, and owners, to plan for the repair and maintenance of common property and assets.
The financial forecasting section must include:
- The anticipated maintenance, repairs and replacement cost for contingency reserve fund common expenses (expenses that usually occur less often than once a year or do not usually occur) projected over 30 years and the factors and assumptions used, including interest rates and inflation rates.
- At least 3 cash-flow funding models for the contingency reserve fund over 30 years. Cash flow models could include: the contingency reserve fund; special levies; increased strata fees, borrowing or some combination of these. The models will need to include projected inflation rates and the interest generated from money invested in the contingency reserve fund (CRF). Note: the models are provided in the report for consideration by the strata corporation, they do not have to be adopted.
- The current balance of the contingency reserve fund (CRF), minus any expenditures that have been approved but not yet taken from the fund, and how the CRF is currently funded.
Depreciation reports must also include:
- A summary of the repair and maintenance work for common expenses that occur less often than once year (i.e. contingency reserve fund expenses)
- The date of the report
- Any other appropriate information or analysis that the strata corporation or the person providing the depreciation report considers appropriate
The Strata Property Act and regulations do not designate which professions can prepare depreciation reports. Stratas can obtain depreciation reports from a variety of professionals.
The knowledge and expertise required to prepare a depreciation report for a six-plex may be considerably different that required to prepare a depreciation report for a high rise residential “condo” tower with its own power generating plant, sections and underground parkade.
The regulations require that the person (note: the word “person” used in the regulations is a legal term and can mean either an individual or a company) preparing the depreciation report must have the knowledge and expertise to:
- understand the scope and complexity of the strata corporation's common property and common assets
- understand the individual components
- understand the strata corporation’s bylaws and any agreements entered into with owners respecting common property and strata lots
- prepare a depreciation report that complies with the regulations including a physical component inventory and evaluation and financial forecasting
The depreciation report must include the name of the person from whom the depreciation report was obtained and a description of:
- that person's qualifications
- the error and omission insurance, if any, carried by that person
- the relationship between that person and the strata corporation
The most recent depreciation report, if any, must be attached to the "Form B: the Information Certificate" and provided to buyers.
Under Section 35 of the Strata Property Act the strata corporation must retain:
- any depreciation reports obtained by the strata corporation under section 94 of the Strata Property Act
- any reports obtained by the strata corporation respecting repair or maintenance of major items in the strata corporation, including, without limitation, engineers’ reports, risk management reports, sanitation reports and reports respecting any items for which information is, under section 94, required to be contained in a depreciation report
- the records and documents referred to in section 20 or 23 obtained by the strata corporation. These are documents provided to the strata corporation by the owner developer.
Strata Property Act sections: 1, 35, 59, 91-96, 98-101, 103, 105, 108, 109, 111, 158, 194, 195
Strata Property Regulation: 6.1-6.6, 6.11, 11.1-11.3
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