B.C. strata councils in ‘critical’ funding state
The Vancouver Sun
Barbara Yaffe
20 January 2016
Real estate appraiser and consultant Jeremy Bramwell says condo board reserve funds are seriously underfunded across B.C.
Photograph by: Arlen Redekop , Vancouver Sun
Strata depreciation reports have unearthed an alarming situation for
B.C. condo owners: The overwhelming majority of strata units are
carrying monthly maintenance fees that are nowhere near adequate to
keep up their buildings.
“This is really a scary situation”
“This is really a scary situation,” says Jeremy Bramwell, of Bramwell
& Associates Realty Advisors. “We are going to have a lot of
special assessments being levied (on condo unit owners) in coming
years.”
Special assessments are the dreaded lump-sum levies imposed on owners
by strata corporations when they need extra cash to cover supposedly
unexpected expenses.
The requirement for depreciation reports was introduced by the B.C.
government in 2011, and were supposed to give strata councils an
advance understanding of the timing and costs involved in maintaining
and repairing assets over a 30-year period.
Bramwell’s company carries out the comprehensive reviews required to produce the depreciation reports.
He recalls one of his client-strata corporations had a reserve fund
with “less than 2 per cent of the money needed” to address the looming
upgrades outlined in its report.
And such dire underfunding is not at all uncommon. Bramwell estimates
that fewer than two per cent of his clients meet even a basic standard
of having a reserve or contingency fund that is deemed just 35 per cent
adequate. Which means 98 per have reserve funds that are less adequate
than that.
“According to international standards, that would mean all of them are in a ‘critical state’.”
“This whole province is in a critical financial position.”
Commenting on strata reserve funds across B.C., Bramwell declared: “This whole province is in a critical financial position.”
The Condominium Homeowners Association of B.C. did not respond to repeated calls for comment.
Bramwell bases his analysis on U.S.-based National Reserve Study
Standards. He notes that in Toronto, monthly fees for condos typically
run between $600 and $900. In Vancouver, “if maintenance fees are more
than $300 a month, it’s surprising.”
Fees are kept low in Vancouver because of housing affordability
challenges. Once a buyer pays a big price for a strata unit, there is
not much left for monthly maintenance.
“I’ve been at council meetings where people are upset to see the numbers. They say that they just don’t have the money.”
owners also want to keep monthly fees low
Condo owners also want to keep monthly fees low to ensure their units remain marketable.
As bad as the financial situation of many B.C. strata corporations is,
another concern has been raised by the requirement for depreciation
reports.
The deadline to acquire the reports was December 2013. But some 40 to
50 per cent of strata corporations are opting to annually defer,
temporarily or indefinitely, the commissioning of such documents.
They can do so because the Strata Property Act provision for
depreciation reports has a couple of loopholes. First, it applies only
to corporations with five or more units. Second, a three-quarter vote
of strata members can nullify the requirement.
Some condo boards don’t want to pay the $2,500 to $5,500 fee to hire
companies like Bramwell & Associates, or Campbell & Pound.
Dan Jones, president of Campbell & Pound, notes that condo owners
“in their senior years are looking at their own personal finances
rather than the community picture.”
Some people prefer to behave like ostriches, says Bramwell, choosing
not to know how onerous their financial obligations really are.
The reports, often dozens of pages in length, are controversial because
condo boards are damned if they have a depreciation report, and damned
if they do not.
That’s because the reports can scare off potential buyers.
what the strata is trying to hide
Then again, if no report has been done, a potential buyer may wonder
what the strata is trying to hide. Without the reports, condo buyers
can be thwarted in obtaining bank mortgages.
Bramwell also cites a lack of standardization in the preparation of
depreciation reports. Because each appraiser carries out work
differently, it is difficult for buyers to compare and contrast
depreciation reports from different buildings.
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