What Buyers and Homeowners need to know about Depreciation Reports

As a realtor who reviews strata documents on a regular basis, I think Depreciation Reports are great! Depreciation Reports are review of all building components: exterior, caulking, roof, balconies, windows, electrical system, fire system, pipes, elevators, hallways, parkades, boilers, intercoms, and more. The report then details the current age of the component, expected replacement and maintenance, and cost involved. The report details financial projections for the next 30 years and offers suggestions on financing plans for the Strata, whether that is through increased strata fees, high levies or a mix of both. These reports are very helpful insight into what the Strata has already maintained and what might be coming up, taking some of the guesswork out of the future.

A few years ago the BC Government, through the Strata Property Act, mandated a new requirement of all Stratas: each year (typically at the annual AGM) Owners need to vote as to whether or not they will be getting a new Depreciation Report done. This was a welcome change to ensure all Stratas have a conversation every year about upcoming maintenance and costs so they can be financially prepared for unavoidable upcoming maintenance in their building.

This rule doesn’t force Stratas to have a Depreciation Report, it just forces them to vote every year which ensures it is part of the yearly conversation. Technically, Stratas can vote “No“ every year and never have a report done, but the status quo indicates that it is not a benefit to the Strata to vote “No” each year as potential Buyers would like to see this report. Once Stratas get the report done they can choose to vote “No” on the update, but should look into getting a new report done once the original report becomes too outdated.
There are a variety of companies that do Depreciation Reports and some are certainly better than others. I find appraisal companies and “Reserve Fund Studies” are never detailed enough to be very helpful or correct, whereas Engineering Companies typically offer the most information and most accurate quotes (in no small part because Engineering Companies are the ones who are often hired for the fix).
However, the quality of the Depreciation Report does also rely on the Strata to ensure the information the company has when doing the report is up to date and correct. Stratas should not overlook their responsibility to review the report before it becomes the official version since I’ve seen a lot of reports that don’t comment on certain building issues (i.e. the Depreciation Report in my own building assumed the parkade membrane was done during the full rainscreen project, which is incorrect and therefore led to a huge project missing from the report and suggested financial projections).
For Buyers who are new to Depreciation Reports, read through the entire report. Thy often do a great job of explaining their purpose and assumptions, and helps clarify the level of information they received, understood and provided. Another detail to look for in the strata minutes is how the Strata reacted to the report – did they take the suggestions and work them into their short term plans? Have they adjusted their strata fees to reflect better savings for projects? Did they review the report in detail first?
Reviewing strata documents is an important part of purchasing a property. There is a lot of information to be found “between the lines” and your agent should help you understand how the building compares to others financially, physically and governmentally.