This is an article by Deb Abbey, contributing writer - January 16, 2010

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 stratas 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 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% of the annual operating expenses.  The new regulations will allow strata corporations to make additional contributions to the CRF, once it reaches 25% 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 CRF's to cover those costs and then have to levy signifiant special assessements 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 corporations, 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 build 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.

In terms of the market, I expect mortgage insurers and lenders will quickly adopt guidelines that give preferences to strata corporations that are measuring and managing their risks.  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.

(Deb Abbey is a real estate agent at Royal LePage City Centre in Vancouver.  She is the author of two best-selling books on Sustainable Investment.  You can contact Abbey through her website: www.abbeypartners.ca, or email any questions or comments to deb@abbeypartners.ca.

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