Provincial Government Mandates Contingency Reserve Fund Studies (Depreciation Reports)

Effective December 13, 2011, every strata corporation must periodically obtain a depreciation report. Condominium developments of less than five strata lots are exempt. A strata corporation can also vote by a 3/4 majority to waive the requirement for the study for up to 18 months.

Furthermore, if your strata has already done a Contingency Reserve Fund (CRF) study, it has now been established in BC Supreme Court (Meslin v. Lee) that a CRF constitutes an "engineer's report" for the purpose of disclosure on the Property Disclosure Statement (PDS) that seller's are required to provide to buyers.

I wrote a blog post last year that explained what the report entails:

"A Contingency Reserve Fund (CRF) Study is a report that may be more common in the future as Strata Councils are faced with the challenge of planning and budgeting for future building maintenance. The document rates the condition of every component of the building from the building envelope and roof to the plumbing and electrical systems. The CRFS will then attempt to assign a cost to replace each of these building components and systems before they fail."

The report must be updated every three years and must be produced by a qualified person (engineer). The report must project the anticipated costs of maintenance, repair and replacement of major building components over the next 30 years. The depreciation report or CRF Study must also contain a financial forecast that offers at least three years of cash flow funding models for the CRF.

You may be asking yourself what does all of this really mean?

In simple terms, it means that strata fees will more than likely be rising once strata corporations realize how underfunded and unprepared they are to address future maintenance and replacement building projects.

On a positive note, it means that we could see fewer, or at least lower, special assessments in the long run because a CRF helps enshrine maintenance savings. Under the "old" system, it was typical for home owners who bought into a newer development (i.e. little maintenance necessary) to get away with paying lower strata fees. Fifteen to twenty years into the life of the project, capital maintenance would be paid for with special assessments. Now, under the "new" system, a CRF will allow the strata to plan for the future and hopefully avoid hitting future buyers up with a large unforeseen special levy.

In the meantime, keep in mind that higher strata fees in developments with a CRF in place may be a good thing - it shows they are "saving for a rainy day".


David Albrice on Apr 10, 2012 12:51 AM posted:
It is encouraging to see real estate agents like David Setton helping to advance depreciation reports in the best interests of the condo community in BC.

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