What depreciation reports are, is a way to assist strata properties project maintenance and replacement of common properties. The reports create projections over the next 30 years, while estimating costs, and how to finance these costs over that time period.
So in other words, is it estimates when components will wear out, how much it will cost to replace, and best way to pay for that cost.
To understand why they are now the reality, lets take a small review how stratas work. Any building will require maintenance and replacement of worn components some point of time in the future, which of course costs money. For strata spaces, the cost of these repairs and replacement is shared among all the owners.
There are two main ways a strata pays for things. Either from money saved up from collecting strata fees, or by everyone paying everything at once, or other words, special levy.
Now onto depreciation reports. Before these reports, it was very difficult for a strata property owner to determine what sort of costs would be coming up in the future. The result of that was unexpected special levies assessed to the owners. People generally don’t like to pay a large lump sum at once, and this made many people upset.
So on Dec 11th 2017, legislation came into play that required stratas to obtain depreciation reports every 3 years, based on public pressure for a method to somehow assist current and future owners manage costs.
Now while it is a requirement for a strata to obtain these reports, there are ways to circumvent this. If you have 4 units or less, you are not required to get a depreciation report. Also, a strata can vote to defer a report, but it requires a 3/4 vote of all the strata to do so.
There are a few requirements that a depreciation report must have. They are as follows:
- A physical inventory of the common property and assets
- Summary of maintenance and repair work to be done
- Anticipated maintenance and replacement over the next 30 years
- Financial forecast for 3 different funding models
- Current contingency balance and how its funded
- A strata’s errors and omission coverage
- If any one individual owners are to maintain certain components
Note that there is no standard qualification for the author of the report.
Typically companies that prepare these reports are either engineering companies, or appraisal companies.
Reading Depreciation Reports
The information in the report can be fairly daunting. When I read these reports, I typically try and focus on a few items. Here are some tips
- Look at the remaining life of some major components. These components are the roof, cladding systems, elevator, parking membrane, windows, large boiler systems, and decks.
- The summary will provide a quick description if there are items that should be of concern
- Depreciation reports assume 100% replacement cost, but it doesn’t mean 100% replacement needs to happen. For example, it may say decks need to be replaced in 15 years. In reality, what will happen is in 15 years, the decks will be assessed, and determined if they really do need to be replaced as a whole, or if only some need to be replaced.
- Just because its on the depreciation report, doesn’t mean it has to be done
Depreciation reports are not required to be followed, it is only information. At the end of the day, strata votes decides what happens. And while not every single item has to be done on a depreciation report, its important to vote on the items you believe need to be done. The strata also votes on how its to be paid. If a strata votes to increase strata fees, or do a special levy.
Common life spans of components
Here are some common life spans of some of the major components of a strata
- Roof: 20-25 years
- Windows: 30-40 years
- Balconies: 10-15 years
- Water lines: 30-40 years
- Cladding (assuming not requiring rainscreen): 25-40 years
- Elevators: 25-35 years
- Underground Parking Membrane: 20-25 years
- Standard Large Boilers: 20-25 years
- Commercial Water Heaters: 8 to 10 years