A new provincial requirement for strata corporations means greater financial certainty for buyers and existing property owners, says a local real estate appraiser.
Keystone Appraisals Inc.’s Rob Ironmonger said a recent provincial government decision to require strata corporations to maintain a fund for maintenance and repairs also makes it mandatory for them to evaluate the anticipated costs to renew or replace all common property.
Called a reserve fund study, the process would look at common property — balcony railings, fences, pavement and other equipment and fixtures — shared by individual strata owners and estimate its usable life span, and its cost to replace.
This exercise would reduce the risk for strata members, said Ironmonger, and avoid putting them on the hook for huge cash outlays if the strata doesn’t have enough reserve funds to cover in the eventuality of repairs.
“Even though some (smaller) strata corporations may opt out of it, I think it’s going to be a situation where they become less desirable from a purchasing point of view, and even from a lender’s point of view,” he said.
Under the new rules of the Strata Property Act, strata corporations have until December 2013 to commission a depreciation report, which includes an inventory of all common property and estimates the cost of renewals and maintenance.
As well, prospective strata property owners must now be provided with a copy of the depreciation report.
This gives the buyers an advantage for real estate, said Ironmonger.
“By and large the people that seem to be advocating wanting the reserve fund studies as part of their purchasing agreement are buyers from provinces where that has been the standard (like Alberta and Ontario),” he said.
“But now a financial institution is also going to want to see a proper reserve fund study done.”
Without a depreciation report, a buyer has no guarantee the strata fee won’t double overnight to cover some unforeseen expense, said Gina Ironmonger, a real estate appraiser with Keystone.
“There’s a huge variation in strata fees on the market,” she said. “But a $75 fee without a depreciation report carries a much higher risk of escalating versus, say, a $100 fee with a report and a sufficient reserve fund.”