Six Facts About Preparing a Depreciation Report

Though nobody can predict the future, it’s safe to say that the major systems and amenities of your Strata will, at some point, require repair and replacement.
The challenging part is determining when the repairs might be needed, and how much they might cost. Sound impossible? Well, not quite. Projections can be made so that you and your fellow Council Members have a good idea of what repair costs will look like in the future, enabling you to prepare for them now.
Such a tool is called a Depreciation Report, and is now required for your Strata Corporation under new legislation that was passed by the provincial government. Here’s some information on how these reports work.
  1. The definition.
    Put simply, a Depreciation Report is a report created by a qualified individual that lists the major components owned by the Strata, what the expected life of these components are, and what the estimated replacement cost will be when they are due to be replaced.
  2. The purpose.
    A Depreciation Report enables your Strata Council to take a proactive approach to savings and maintenance. That is, you’ll be able to anticipate any problems that might arise and be prepared ahead of time. Because you’re ready to make major repairs or replacements when they happen, you’ll be able to keep the value of your Strata maximized. Your Depreciation Report is also an essential step toward maintaining stability for both current and future Owners, and it will save you the time and expense associated with trying to handle problems in a reactive circumstance when they surprise you. Finally, the Depreciation Report will give you a clear picture of your liabilities, and it will take much of the guesswork out of when they might occur.
  3. The professionals who create it.
    So now that you know the value of a Depreciation Report, whom do you turn to in order to help you create it? A great property management company can help guide you along the way, pointing you toward experienced professionals such as engineers and inspectors. Look for professionals who have achieved designations such as ARP or CRP and who have a proven track record.
  4. The length of the report.
    How far into the future should you look? For Stratas, it’s recommended that your Depreciation Report should project potential liabilities for the next 30 years. Remember, this is a long-term strategic document, separate from the one-year operational plan and your five-year tactical goals. The good news: once your Depreciation Report is complete, there’s no reason to tinker with it too much along the way. Use it as a series of guideposts to help steer your journey into the next three decades. Thirty years from now (if not sooner), your Strata’s Residents will be thanking you for your foresight.
  5. The cost.
    You already know the cost of not conducting a Depreciation Report: special levies, unplanned liabilities, and budget deficits due to the requirement of repairs made on an emergency basis. So what is the cost of foresight? Well, it depends on a few factors, including the size and complexity of your Strata and the level of detail you want in the Depreciation Report you commission. Your Strata Management company should be able to provide you with samples and the different costs of the reports.
  6. The funding.
    Funding your Contingency Reserve Fund is consistent with the philosophy of the reserve itself: make it happen over time. Very few Strata Corporations fully fund their Contingency Reserve Fund to the level a Depreciation Report outlines. Most strike a balance between what is needed and what the ownership is willing to pay. Having a plan that can be clearly explained to the ownership is key for any Strata Council.

The future is a mystery. But figuring out how to pay for inevitable repairs doesn’t have to be. Embark on your Depreciation Report now – an experienced, property management company can help make it easier. To find out more, contact FirstService Residential, North America’s leading property management company. 
Wednesday July 16, 2014