Continuity
BC will require depreciation reports every five years for strata corporations. This change aligns with Ontario's practice of mandatory reserve fund studies every three years, aiming to prevent budget shortfalls and unexpected costs.
Having been in the trenches on a condominium board in Ontario for two terms, I was surprised to learn that reserve fund studies aren’t mandatory across Canada. Reserve fund studies, which are called depreciation reports in British Columbia (BC), are as necessary to condominium boards in Ontario as a compass is to a camper in the backcountry. Without a reserve fund study, board directors would be lost when preparing their annual budgets.
How much should condominium owners contribute towards major repair and replacement work required on their property’s common elements? Reserve fund shortfalls, which are already becoming more common due to increases in inflation in recent years, would be rampant in the industry. Condominium owners would then be faced with unexpected and irregular special assessments. This would affect the affordability and stability of condominium ownership, making it less desirable compared to other types of housing.
Beginning on July 1, 2024, strata corporations in BC will not be able to waive rules that otherwise require them to obtain a depreciation report. Before these regulatory changes, the requirement to obtain a depreciation report could be waived by an annual ¾ vote of owners.
Prudent council members in BC would arguably want and appreciate obtaining a depreciation report, as it is a useful guide and forms an objective basis for determining the portion of maintenance fees that should be set aside for capital expenditures. However, when there is an ability to waive them, council members might feel pressured in certain circumstances to defer them, perhaps by owners who want to save on the cost of the report or who want to defer contributions required to future repairs.
By eliminating the ability of strata corporations to waive depreciation reports, the BC government has helped strata council members to better govern and manage their properties.
Interestingly, depreciation reports are required only every 5 years in BC, whereas in Ontario, reserve fund studies are required every 3 years.
Depreciation reports and reserve fund studies get stale very quickly, arguably within a couple of years after they were prepared. This is because the actual cost of major repair and maintenance work changes annually, especially in a period where inflation has been higher than average. Moreover, construction methods, materials and related technologies change rapidly, providing more options and different considerations (e.g., enhanced energy savings) for repair and replacement projects as each year goes by.
The actual repair and replacement work undertaken by a condominium usually differs from the work projected in a reserve fund study. This is because reserve fund studies are performed somewhat superficially and are based on average lifespans of the property’s equipment and property.
Before undertaking any major repair or replacement work, strata councils and condominium boards typically hire engineers and other professionals to conduct condition assessments, to determine more precisely the condition of their property listed in the next 1-3 years in a reserve fund study or depreciation report. Depending on the outcome of the condition assessment, work is deferred, accelerated, or the scope differs from what is average or part of the normal life cycle of the property.
In Ontario, some condominium corporations obtain fresh reserve fund studies annually, especially if they have large properties and budgets (e.g., spending in the range of several million dollars per year, on capital expenses). Other corporations have their reserve fund studies updated annually, reflecting actual spend vs. the expected spend in the original report, giving them better visibility into their future finances than they’d have otherwise.
Another interesting difference between BC and Ontario condominium laws is that in BC, a strata corporation can’t use their contingency reserve fund to pay for expenditures unless they are recommended under a depreciation report. There are some exceptions, such as expenditures related to EV charging infrastructure or expenditures necessary to ensure safety, but generally, all other expenditures must be approved by a ¾ vote of the strata owners.
This is in stark contrast to rules in Ontario which permit condominium boards to spend reserve fund amounts on anything as long as it is considered a “major repair or replacement”. In this regard, the guard rails protecting how reserve fund amounts are spent are sturdier in BC than in Ontario.
As depreciation reports become mandatory in British Columbia, strata councils are now better equipped to manage their properties effectively.
Reserve fund and depreciation reports provide a roadmap for future repair and replacement project work, helping to ensure that financial planning is more accurate and transparent. This shift to mandatory depreciation reports mirrors standards already in place in Ontario and other provinces, highlighting the importance of regular, professional assessments for maintaining the long-term health of condominium properties.
At Managemate, we understand the complexities of reserve and contingency fund management. Our software is designed to help condominium boards and strata councils stay organized, keep track of maintenance history, and make informed decisions about capital work.
By building innovative software tools, we aim to support board directors, strata council and their property managers in their efforts to maintain their properties efficiently and effectively. Smart, automated and easy-to-use software can make the transition to these new regulatory requirements smoother and more manageable, ultimately benefiting all condominium stakeholders.
May 28, 2024
Having been in the trenches on a condominium board in Ontario for two terms, I was surprised to learn that reserve fund studies aren’t mandatory across Canada. Reserve fund studies, which are called depreciation reports in British Columbia (BC), are as necessary to condominium boards in Ontario as a compass is to a camper in the backcountry. Without a reserve fund study, board directors would be lost when preparing their annual budgets.
How much should condominium owners contribute towards major repair and replacement work required on their property’s common elements? Reserve fund shortfalls, which are already becoming more common due to increases in inflation in recent years, would be rampant in the industry. Condominium owners would then be faced with unexpected and irregular special assessments. This would affect the affordability and stability of condominium ownership, making it less desirable compared to other types of housing.
Beginning on July 1, 2024, strata corporations in BC will not be able to waive rules that otherwise require them to obtain a depreciation report. Before these regulatory changes, the requirement to obtain a depreciation report could be waived by an annual ¾ vote of owners.
Prudent council members in BC would arguably want and appreciate obtaining a depreciation report, as it is a useful guide and forms an objective basis for determining the portion of maintenance fees that should be set aside for capital expenditures. However, when there is an ability to waive them, council members might feel pressured in certain circumstances to defer them, perhaps by owners who want to save on the cost of the report or who want to defer contributions required to future repairs.
By eliminating the ability of strata corporations to waive depreciation reports, the BC government has helped strata council members to better govern and manage their properties.
Interestingly, depreciation reports are required only every 5 years in BC, whereas in Ontario, reserve fund studies are required every 3 years.
Depreciation reports and reserve fund studies get stale very quickly, arguably within a couple of years after they were prepared. This is because the actual cost of major repair and maintenance work changes annually, especially in a period where inflation has been higher than average. Moreover, construction methods, materials and related technologies change rapidly, providing more options and different considerations (e.g., enhanced energy savings) for repair and replacement projects as each year goes by.
The actual repair and replacement work undertaken by a condominium usually differs from the work projected in a reserve fund study. This is because reserve fund studies are performed somewhat superficially and are based on average lifespans of the property’s equipment and property.
Before undertaking any major repair or replacement work, strata councils and condominium boards typically hire engineers and other professionals to conduct condition assessments, to determine more precisely the condition of their property listed in the next 1-3 years in a reserve fund study or depreciation report. Depending on the outcome of the condition assessment, work is deferred, accelerated, or the scope differs from what is average or part of the normal life cycle of the property.
In Ontario, some condominium corporations obtain fresh reserve fund studies annually, especially if they have large properties and budgets (e.g., spending in the range of several million dollars per year, on capital expenses). Other corporations have their reserve fund studies updated annually, reflecting actual spend vs. the expected spend in the original report, giving them better visibility into their future finances than they’d have otherwise.
Another interesting difference between BC and Ontario condominium laws is that in BC, a strata corporation can’t use their contingency reserve fund to pay for expenditures unless they are recommended under a depreciation report. There are some exceptions, such as expenditures related to EV charging infrastructure or expenditures necessary to ensure safety, but generally, all other expenditures must be approved by a ¾ vote of the strata owners.
This is in stark contrast to rules in Ontario which permit condominium boards to spend reserve fund amounts on anything as long as it is considered a “major repair or replacement”. In this regard, the guard rails protecting how reserve fund amounts are spent are sturdier in BC than in Ontario.
As depreciation reports become mandatory in British Columbia, strata councils are now better equipped to manage their properties effectively.
Reserve fund and depreciation reports provide a roadmap for future repair and replacement project work, helping to ensure that financial planning is more accurate and transparent. This shift to mandatory depreciation reports mirrors standards already in place in Ontario and other provinces, highlighting the importance of regular, professional assessments for maintaining the long-term health of condominium properties.
At Managemate, we understand the complexities of reserve and contingency fund management. Our software is designed to help condominium boards and strata councils stay organized, keep track of maintenance history, and make informed decisions about capital work.
By building innovative software tools, we aim to support board directors, strata council and their property managers in their efforts to maintain their properties efficiently and effectively. Smart, automated and easy-to-use software can make the transition to these new regulatory requirements smoother and more manageable, ultimately benefiting all condominium stakeholders.
