Is a Depreciation Report (DR) necessary? Two Real-World Scenarios Compared

A Depreciation Report (DR) is a forward-looking financial planning tool designed to help strata corporations—and the owners within them—plan for future repairs and replacements. Still, some strata councils and property owners question whether a DR is truly necessary or worth the cost.

In this post, we’ll dive into the risks of not obtaining a DR and compare two scenarios: one building that obtains a DR and another that forgoes it. By exploring these two cases, you’ll see just how impactful this decision can be on everything from monthly fees to property values and owner satisfaction.

Why Might a Strata Skip Getting a DR?

Several reasons can lead a strata to opt out of obtaining a Depreciation Report:

• Cost Concerns: Commissioning a DR involves an upfront expense, and some councils hesitate to spend that money.

• Short-Term Thinking: Owners may think, “We’ll deal with major repairs when they happen.”

• Lack of Awareness: Some strata councils may not fully understand the long-term savings and benefits a DR can provide.

• Misconceptions About Requirements: In some jurisdictions (like British Columbia), a DR may be mandatory unless voted down by a significant majority of owners. Some incorrectly believe it’s entirely optional without consequences.

However, skipping the DR can lead to larger financial pitfalls down the road—especially if you find yourself facing sudden repair costs and no plan for covering them.

Scenario 1: A Strata That Obtains a Depreciation Report

Let’s start with a fictional but entirely plausible scenario:

Background

• Building Age: 20 years

• Number of Units: 50

• Recent Maintenance: Minor roof repairs, elevator inspection, landscaping

Key Steps Taken

1. Hires a Professional: The strata council commissions a third-party engineering or consulting firm to inspect major components (roof, plumbing, electrical, windows, etc.).

2. Receives 30-Year Cost Projections: The Depreciation Report outlines each component’s remaining lifespan and replacement cost, totaling around $800,000 in major repairs over the next 15 years.

3. Adjusts Monthly Fees: Armed with the DR’s findings, the council decides to increase strata fees moderately to ensure the Contingency Reserve Fund (CRF) grows at a steady pace.

4. Transparent Communication: The council shares the DR with all owners, explaining that the increased fees will help prevent large special levies in the future.

   
   

Outcomes

• Predictable Budgeting: Each owner knows roughly how much they’ll be paying in the next few years, avoiding financial surprises.

• Fewer Special Levies: With a well-funded CRF, the strata can handle major repairs without imposing sudden, high-cost levies.

• Higher Property Value: Potential buyers appreciate the forward-planning and are willing to pay more for units in a responsibly managed building.

• Reduced Owner Tension: Transparency around upcoming costs fosters trust and lessens conflict among owners.

Scenario 2: A Strata That Skips the Depreciation Report

Now, let’s look at another strata facing similar conditions but choosing a different path.

Background

• Building Age: 20 years (same age as the first scenario)

• Number of Units: 50 (same size as the first scenario)

• Recent Maintenance: Minor roof repairs, elevator inspection, landscaping

Key Steps Taken

1. Council Votes Down a DR: Concerned about the initial cost, the council decides not to commission a Depreciation Report.

2. Minimal Reserve Savings: Without a clear forecast of major repairs, contributions to the CRF remain low.

3. Reactive Maintenance: The council addresses repairs only when absolutely necessary—often after a component fails.

4. Uncertain Future: Since owners don’t have long-term projections, many assume “everything’s fine” until they’re told otherwise.

   
   

Outcomes

• Surprise Repair Costs: When the building’s roof fails unexpectedly, it requires a $300,000 replacement. With a low CRF, owners face a large special levy.

• Potential Financial Hardship: Some owners struggle to pay the sudden levy, creating financial strain and even leading to property liens or forced sales.

• Lower Property Value: Prospective buyers notice the building’s lack of planning; they may either offer less or look elsewhere.

• Strained Relationships: Frustration grows among owners, blaming the council for not planning better and increasing monthly fees earlier to avoid the crisis.

Comparing the Two Outcomes

The differences between the two scenarios are stark:

Aspect	Scenario 1 (With DR)	Scenario 2 (Without DR)
Financial Planning	Predictable, proactive, well-communicated	Reactive, prone to sudden large levies
Owner Satisfaction	Generally high; fewer conflicts and complaints	Tension and conflict often arise around unplanned expenses
Property Value	Maintains or increases, thanks to transparent budgeting	Potentially lower, as buyers see signs of poor financial health
Monthly Fees & Levies	Moderate, steady increases over time	Typically lower at first, then spike dramatically
Maintenance Strategy	Proactive (fixing issues before they escalate)	Reactive (only tackling issues when they become critical)

Is a Depreciation Report Necessary?

Legally, it depends on your local jurisdiction’s strata laws. In places like British Columbia, Depreciation Reports are either mandatory or can only be waived by a significant majority of owners. Even if not legally required in your area, a DR offers significant benefits:

• Improved Financial Health: You’ll know how much to set aside each year.

• Enhanced Transparency: Owners gain trust when they see exactly where their fees are going.

• Stabilized Monthly Fees: Spreading out costs over time rather than imposing large one-time levies.

• Higher Buyer Confidence: DRs are often seen as a sign of a well-managed property, aiding resale values.

Final Thoughts

A Depreciation Report is more than just a document; it’s a strategic roadmap that can save owners from financial shocks and help maintain (or even increase) property values. While you may reduce your immediate expenses by skipping a DR, the long-term costs—both financially and emotionally—can be far greater.

Ready to Secure Your Building’s Future?

• Try our Depreciation Report Price Calculator to see how easy and affordable it can be to plan ahead.

• Reach out to us for a no-obligation consultation—we’re here to guide your strata through the process step by step.

Remember, whether you’re a seasoned council member or a new property owner, having a clear picture of future repairs and their costs can empower you to make decisions that benefit everyone in the community.

Request Quote

External Links:

1. BC Government Strata Housing - https://www2.gov.bc.ca/gov/content/housing-tenancy/strata-housing

2. Homeowner Protection Office (HPO): Guides on maintenance and funding best practices - https://www.bcbudget.gov.bc.ca/2008/sp/pdf/agency/hpo.pdf

3. Condominium Home Owners Association of BC (CHOA) - https://choa.bc.ca/