How to understand strata minutes when buying a condo
If you’re buying a condo, it’s essential that you understand the strata minutes of your new building
Considering the purchase of a strata condo? One of the key steps to ensure you are making a sound purchase will be in reviewing the strata minutes. Not the most exciting of reading choices – however, the minutes will provide you with an in-depth look, not only to the building and operations, but also a peek into the condo culture.
How to approach minutes, in four easy steps:
#1 Read the minutes from oldest to most recent
A minimum of two years is a standard request. As you read, keep a running tally of any questions you have, removing from the list questions answered as you read forward through subsequent months. From this summary, prepare a list of any unanswered questions you would like us to obtain for you from property manager or seller - we will be making our own lists as well.
#2 Be sure to read correspondence closely
Pay attention to any records of complaints regarding a specific owner. Be sure to enquire about corresponding unit number and determine proximity to the unit you are looking to purchase. Noise/ harassment disputes are very hard to resolve and wherever possible should be avoided.
#3 Request a copy of all current bylaws and rules
Look for tenant requests and said outcomes. If a previous request has been voted down, ie access to electrical outlets for electric car charges (often not readily available in older buildings), or acceptance of a pet slightly larger than a 40 lb maximum (not easy sneaking in your Newfie), you can be sure this will not be an easy change.
#4 Request copies of reports
Always request copies of reports referenced in minutes,and if work is done based on these reports, ask for a scope of work to make sure all suggested work was completed. Reports may include:
- Current budget and a statement of the contingency reserve fund. This will help determine if there is a sufficient budget to meet the current operations of the building, and enough contingency to cover an emergency repair or replacement. Note: The contingency and required upkeep of the building and property will directly affect monthly strata fees.
- Insurance policy and the history of insurance claims on the strata common areas can signal potential problems.
- A depreciation report, if available, will include a Form B, providing information on current and future costs to the strata. (Effective December 13, 2013, all strata corporations of five units or more in British Columbia, must complete a depreciation report as required by the Strata Property Act, unless they have passed a three-quarters vote each year they wish to be exempt from the requirements.)
- A copy of the strata plan that shows what property you will be responsible for and what is common property (e.g. decks and balconies), the provision of parking and storage space or any changes that have been made to the development. Note: your home inspector may not have access to inspect common property areas, emphasizing the importance of reviewing a depreciation report.
As a prospective purchaser, you want to obtain as much information as possible regarding the strata corporation, the condition of common property and your new neighbours. It is a story you’ll be glad you gave more than a minute to read.
How Low is Too Low for Strata Fees and Contingency Fund?
If you’re buying a condo and checking its financials, ensure there’s enough cash in the pot for major repairs
Depreciation is an important word to analyze when it comes to any real estate purchase. An example of commonly known depreciation is when you buy a new car: it is often said that you lose 20 per cent of a new car’s value the minute you drive it off the lot. Thankfully housing doesn't depreciate at anywhere near that level, but over time it can be a concern.
As a rule of thumb, the first 20 years of a condo's life should be relatively problem free as long as the builder is reputable and knows what they are doing. But after that, maintenance items do crop up and it's important the strata council has a plan to address them. The longer they wait to fix any outstanding items, generally the more it will cost.
In BC, strata councils are now required to facilitate a deprecation report for its residents, but they can avoid paying for one if there is a three-quarters vote to waive the requirement during their annual general meeting
If fees are too low this can often be a warning sign that there is not enough money in the reserve contingency fund to address any major issues. If there is not enough money to pay for major issues facing the building how does it get paid for? A special assessment is when a strata gives each owner a one-off bill proportional to each unit, and it must be paid within a certain time frame. Emphasis on “must” – there is no negotiating this payment, once the decision has been made. Pay or face the penalty, and this can even include a lien on your condo.
There is no standard amount for a healthy reserve fund, but there are some decent rules of thumb that you can go by. For a wood-framed building I often recommend trying to find a condo where there is a minimum of $5,000 per unit in reserve. For example, a 40-unit building should ideally have $200,000 in the bank. For a concrete high rise building my recommendation is $10,000 per unit. It's not that there are more problems with high rise buildings, it's just that when they occur they are often more expensive to resolve. The amount needed goes up the older the building is.
Low monthly strata fees can often be an illusion of health, when in fact it's quite the opposite. It's important to recognize this and analyze it rationally. Getting hit with a special assessment out of the blue can often cripple an owner financially, I've seen them as large as $60,000. It's important to work with an experienced REALTOR who can give you professional advice and help you make as informed decision as is humanly possible with all the information available. It's one of the most important considerations to look at when purchasing into a strata complex, so make sure you analyze all the variables and make a sound decision.