Expert Guide To Depreciation Reports

Depreciation Report, what is it? A depreciation report is a key management tool for stratas. It helps the owners in a strata corporation plan and pay for the repair, replacement and renewal of common property and assets such as a roof, windows, elevators, parking membranes, lobby improvements and other items.

What is the purpose of the Depreciation Report:

1. It is a planning tool that gives insight about what building expenses will be coming up down the road.
2. It offers consumer protection by identifying the buildings current condition
3. It provides a minimum of three financing options of the projected costs over a 30yr period

Surprising Fact: The strata corporation is not required to choose any of the financing options provided in the depreciation report. There is absolutely no requirement for the Strata to follow the report or fund the expenses.

Expert Tip: The Depreciation Report doesn’t include anything that an individual owner is responsible for. It is crucial that you read the bylaws to know what is Strata’s responsibility and what is the responsibility of the individual owner. For example, if windows are maintained by the individual owner (according to the bylaws) then they will not be included in the depreciation report but an owner (or prospective buyer) should be aware of the potential expenses related to maintaining and replacing their windows.

Who can prepare the Depreciation Report:

A “Qualified Person”: Engineers, Building inspectors, Appraisers, etc. Ideally there would be greater emphasis on who can prepare these Depreciation reports, but unfortunately there are not enough engineers to handle the demand and requirement for all of the stratas (of 5 units or more) to be required to do depreciation reports.

Expert Tip: It is important for the drafter of the depreciation report to have insurance so that those relying on the content will have recourse if the depreciation report turns out to be inaccurate.

What to do if there is NO Depreciation Report:

Confirm whether the strata has had any other engineering reports that confirm the current condition of the building and its assets. If there are no reports, there could be significant risk! Buyer beware! Unknowns can be costly.

How can we as Realtors help you:

1. We can confirm that the Report is recent (within 3yrs)
2. We can confirm that it was drafted by a qualified person
3. We can confirm that the drafter is insured. You have no recourse if there are major errors on the report.
4. We can make sure that the buildings inventory list is complete and that it is consistent with the building’s bylaws.
5. We can confirm that there are at least 3 financial forecasts included and help to identify any potential red flags.

Expert Tip: Make sure that the building envelope is included in the inventory list of items for repair. Sometimes it can be excluded and suggested that the strata have a separate “Building Envelope Condition Assessment Report”. This can be a very costly project and should be factored into any funding model.