Depreciation Report – Reserve Fund Study

Depreciation Reports, in combination with a solid maintenance plan, are essential to attaining long-term performance of buildings. Knowing the expected replacement time and costs of major components will greatly assist owners to effectively plan financially.

Although property managers and owners have always been responsible for ensuring that their buildings are in a good state of repair by managing their capital assets and planning renewal activities, the legal requirement for Strata Corporations to prepare a depreciation report (with some exceptions) is a recent amendment to the British Columbia Strata Property Act.

The team at Morrison Hershfield draws from its extensive experience with residential construction, rehabilitation and life cycle costing, and works with the Strata Corporation to prepare the depreciation report and associated funding scenarios.

Our Experience

Whether your strata is an aging eight-unit townhouse complex or a newly constructed 500+ mixed use development, Morrison Hershfield has the experience you are looking for.

Our local offices have prepared Reserve Fund Studies for the following:

• Multi-building complexes
• High-rises
• Wood framed low-rises
• Townhouse complexes
• Co-operative housing
• Mixed use developments (commercial/residential/hotel)
• Joint and individual strata
• Newly constructed, newly renovated and aging infrastructure

No matter your location in BC, from Vancouver Island to the interior, to northern BC, Morrison Hershfield is available in your community.

Morrison Hershfield has developed a web-based Strata Maintenance and Renewal Tool (SMART) system to assist the Strata in managing their maintenance/renewal program.

This is not proprietary software, but rather a Microsoft-based program developed by Morrison Hershfield for use in this application. It is a user-friendly interface for Owners familiar with programs like Excel to view their documents and actively update their expenditures as they are made each year, or as contributions change etc. It is also a platform for the Strata to upload relevant supporting documents, to view their upcoming renewals and to receive email notifications of any upcoming activities. Finally, it is a permanent record of the report for future owners, councils and property managers.

For the Depreciation Report, the web portal allows the Strata to view working copies of the report on a secured internet site. This provides a dynamic and working copy of their cash flow scenario and the ability to store the final versions along with any supporting documents so that the reports are available to future Board members, future owners, and property managers, as allowed by the Board. In addition, the web-portal will provide a calendar with upcoming milestones as scheduled in the 30-year cash flow with email notification.

Web access is included in the cost of the Depreciation Report for the first year. At which time the subscription can be extended on an annual basis for a nominal fee.

How to Navigate SMART

A brief instructional video for users of the Morrison Hershfield SMART system. This video will help users navigate the site and provide direction for how to update their maintenance activities, as well upload additional documents.

Helpful Links

• BC Housing
• Canada Mortgage and Housing Corporation
• Condominium Home Owners Association
• Homeowner Protection Office
• Professional Association of Managing Agents
• Real Estate Council of BC

Client Feedback

“Morrison Hershfield has provided me with peace of mind, during the eight years of consulting services for our strata property. As a long-term council member, and now as an engaged owner, I can always rely on Morrison Hershfield’s extremely capable and dedicated personnel to ensure our strata property has the necessary input for the maintenance, repair, and the imperative consulting for major replacement projects.

Their ability to clearly identify and explain options, to a layperson person like myself, significantly assists with the complexities of decisions required by Stratas today.

No matter what the project, from our Building Envelope Repair to providing Maintenance & Repair Manuals, to our Yearly & Warranty Reviews, I have experienced keen and responsive attention to our specific needs. They have now just completed our Reserve Study and were the “go to” engineering consultants for our recent Re-Piping Project.

I am convinced that this long, successful relationship with Morrison Hershfield, has proven to be not only cost effective for the owners, but also it has made a strong contribution to the increases to the market values of our Strata property.”

June Currie
Mayfair House Vancouver

BC Strata Act Regulations and Legislation

Read Bill 8 of the Strata Property Amendment Act, 2009.

Did you know?

• Strata Corporations of less than five units are exempt from preparing a depreciation report.
• All other strata are required to provide a depreciation report unless the strata corporation passes a three-quarters vote to exempt themselves on an annual basis.
• Strata are required to provide a depreciation report by December 13, 2013; or three years after a previously valid depreciation report; or eighteen months after a successful three-quarter vote to exempt if the subsequent vote fails.
• Once prepared, the depreciation report is required to be attached to Form B, Information Certificate Section 59. This Information is passed on to potential buyers, their mortgage provider or mortgage insurer etc.
• The depreciation report must be prepared by a qualified person, defined in the Act as “any person who has the knowledge and expertise to understand the individual components, scope and complexity of the strata corporation’s common property, common assets and those parts of a strata lot or limited common property, or both, that the strata corporation is responsible for maintaining or repairing under the Act, the strata corporation’s bylaws or an agreement with an owner and to prepare a depreciation report that complies with subsections (1) to (4)” (of Section 94).
• The act requires the name of the person from whom the depreciation report was obtained along with their qualifications, their relationship with the strata corporation and the error and omission insurance, if any, carried.

Typical Scope of Services

Once engaged to prepare a depreciation report, Morrison Hershfield will perform the following tasks:

1. Review documentation including drawings, past maintenance records and financial statements.
2. Perform a physical analysis of the common building components to determine their current condition, expected replacement costs and remaining life expectancies in accordance with 6.2(2) of Section 94 of the Act.
3. Provide a 30-year forecast of anticipated expenditures for common property.
4. Perform a financial analysis to produce three funding scenarios which take into account inflation and interest in accordance with 6.2(3) of Section 94 of the Act.
5. Work with the Owners between drafting and finalizing the report.
6. Produce a professionally stamped report meeting the requirements of 6.2 of Section 94 of the Act.

Value of a Depreciation Report

The value in conducting and implementing a Depreciation Report are plentiful:

• Complies with the BC Strata Property Amendment Act
• Distributes the replacement costs of common components to each owner, in accordance with their period of ownership
• Reduces the requirements for future special levies by contributing to the cost before expenditures occur
• Typically will reduce the overall cost by contributing regularly and in advance of when the funds are required
• Maintains the value of the property in a competitive market
• Allows interested owners to remain informed on the condition and value of their asset