Specializing in Strata Depreciation Reports

What are the Key Elements of Depreciation Reports?

Posted by on April 03, 2013 in Uncategorized

Property owners need to make occasional repairs and replacement of building components in order to keep the common areas of properties in good condition. A Depreciation report or Reserve Fund Study refers to an analysis and recommendation for the reserve funds required to meet these repairs and replacement. The report provides the information needed to plan for long-term budgeting.

It also enables the Strata Council to collect funds in advance and in reasonable amounts from unit owners. When the need to make repairs or replacement occurs, the Reserve Fund contains the necessary capital to finance the item. This approach eliminates the need for expensive borrowing or levying special assessments on unit owners.

Depreciation reports also provide helpful data to prospective buyers, insurance companies, and mortgage lenders.

New rules require Strata Corporations in British Columbia to have depreciation reports in place by December 13, 2013. All studies must have the following key elements:

1) Physical inventory

The depreciation report must contain a physical inventory of the common property. This entails conducting an inspection to determine the condition of applicable components as dictated in the in Strata Property Regulation 6.2.

These components typically include the following items:

  • Roofs, doors, windows, decks
  • Common electrical, plumbing, heating, security and fire protection systems
  • Common area and facilities such as —pool, exercise room, party rooms, etc.
  • Site improvements such as roadways, parking lot, landscaping, and utilities including water and sewage
  • Interior – common and limited common property such as corridor and lobby floor coverings and furnishings, patios and balconies

The above items represent just a partial list of the components depreciation reports must cover. The actual items vary depending on the property, the strata bylaws and strata plan, and other factors.

2) Maintenance and repairs summary

In British Columbia, a depreciation report must include a 30-year projection that covers the anticipated long-term maintenance and repairs for common areas and components. The summary should not include any work or repair completed on an annual basis, as those items fall under the operating budget.

Besides a maintenance and repair summary, the report should contain an effective date, the credentials of the report author, the person’s relationship to the corporation, and errors and omission insurance information.

If individual owners have the responsibility to repair or maintain portions of limited common property or common property, the author must detail this exception in the report. The author can also include other pertinent information as appropriate.

3) Financial forecasting

Based on data from the physical analysis and summary of maintenance and repairs, the financial forecasting section of depreciation reports must contain information regarding repair and replacement costs over the next 30 years and any assumptions or factors used for estimations.

Other information required in the report includes future interest rate projections, inflation indexes and predicted future constructions cost. The author must also consider the history of the property’s reserve fund and provide at least three cash flow models.

Report preparation

Only individuals with the “expertise and skills” should prepare depreciations reports. These people have the experience to understand individual components of the common property as well as their scope and complexity. Here are the necessary skill sets required for a report

  • Read and interpret technical documents
  • Conduct site inspections
  • Knowledge of building systems and building codes
  • Understand strata corporations and their responsibilities for maintenance and repairs, financial obligation and other items
  • Ability to prepare financial cash flow projections

The person must also comprehend the nuances of preparing a report that meets the requirement of Regulations. The skills required for preparing a report for a six-unit property may vastly differ from the capabilities an individual or team must possess to complete a study for a 100 unit complex.

At NLD Consulting, we have an entire team of Certified Reserve Planning specialists who can prepare depreciation reports in British Columbia. Contact us today for a quote on your reserve fund study.

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