Owners ‘just don’t have the money’ for proper contingency funds
BY BARBARA YAFFE, 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,” 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’.”
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.”
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.
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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