New Strata Regulations Good for Condo Buyers, Strata Property Act Reforms Long Overdue
This article appeared in the Vancouver Courier and was written by Royal Lepage City Centre Realtor Deb Abbey. The strata rules will also be applicable for Kamloops condos, townhouses and stratified properties. The changes are welcomed as it is always important that both the sellers and buyers are thoroughly informed. Article below:
2012 brings long awaited reform to the Strata Property Act that will provide greater security for more than one million strata property owners in the province.
But the biggest beneficiaries of the new regulations will be prospective buyers. Buying a condominium is a complex process in B.C. with buyers and their real estate agents playing the role of real estate detectives trying to suss out information about the state of the building envelope or running down maintenance and engineering reports trying to assess the true value of the property given any potential liabilities.
Until now, there haven’t been many, if any, safeguards for purchasers of condos that have been badly built or managed by their owners. Poor maintenance, inadequate or no budgeting for future repairs and replacements, and little or no transparency in terms of liabilities are issues with many strata corporations in Vancouver. That is about to change.
Among the changes, strata corporations will be required to prepare a depreciation report. The report will include a physical inventory of the strata’s common property including building systems such as the building envelope, roof, pipes and boilers. The report will also include an estimate of the cost of anticipated maintenance, repair and replacement of those common property items projected over 30 years.
And most important to prospective buyers, the strata corporations will be required to prepare financial forecasts of how the strata will fund those expenses from the contingency reserve fund or special levies. The report will have to be updated every three years and include an onsite inspection. The new regulations will be effective immediately but stratas will have two years to comply.
As a potential buyer, you’ll be provided with a copy of the most recent version of this report along with the Form B. Unfortunately, there’s a catch. Short-sighted stratas will be able to exempt themselves from this requirement with an annual 3/4 vote.
As a real estate agent, I hope that our industry widely adopts this report as a tool to assess risk and attribute value to the quality of management in strata corporations. Given the opportunity to buy or own a property that has future risk quantified and accounted for in this way, I know that I’d recommend those properties that have depreciation reports to my clients. The old adage “if you don’t measure it, you can’t manage it” has never been more appropriate.
Contingency reserve funds [CRF] have also gotten a boost from the new regulations. In the past, a 3/4 vote was required to make contributions to the CRF if it already exceeded 100 per cent of the annual operating expenses. The new regulations will allow strata corporations to make additional contributions to the CRF, once it reaches 25 per cent of the annual operating expenses, with a simple majority vote as part of the budget at the AGM.
This may sound like an insignificant bit of regulation but many stratas with looming expenses such as new roofs, windows or re-piping do not contribute enough to their CRFs to cover those costs and then have to levy significant special assessments that have condo owners rushing out to secure second mortgages.
And finally, there will be regulations requiring Form B to provide better disclosure to new strata owners. As of March 1, the rules and current budget of the strata corporation, Form J [the Rental Disclosure Statement] and the most recent Depreciation Report, will have to be attached to the Form B. The amendments will also require disclosure of how parking stalls and storage lockers are allocated to strata lots.
The changes fall short of the recommendations put forward by the British Columbia Real Estate Association and others. They don’t go nearly far enough in insulating prospective buyers from badly built or managed condos, but they will increase accountability and transparency for owners and potential buyers.
There’s bound to be some fallout from these regulations. The requirement to provide the depreciation report will be financially onerous for some strata corporations. Especially those with owners who qualified for mortgages with a minimum down payment and are just barely able to pay their strata fees as it is. I hope that the government recognizes that this will be a hardship and arranges some kind of low-interest financing tool so that as many stratas as possible can comply with the new regulations.
In terms of the market, I expect mortgage insurers and lenders will quickly adopt guidelines that give preference to strata corporations that are measuring and managing their risk. Over time, this will mean strata buildings that provide more disclosure will sell at a premium to those that don’t. And they’ll be worth it.