Condo owners in BC face the prospect of significant special levies because of the way strata corporations are funded in the province, says a Vancouver software firm.

BC has lower average monthly strata fees ($470) than Ontario ($650), but BC condo owners are at greater risk of special assessments because of their much lower reserve contributions, according to Vancouver-based OctoAI Technologies Corp.

The average monthly reserve contribution in BC is $75 compared to $210 in Ontario, it said. That’s because BC requires 10% of operating budgets to be set aside, whereas Ontario links minimum contributions to expected future capital expenditures, said Thomas Beattie, OctoAI’s CEO.

“We [in BC] are undercontributing materially, and that shortfall is made up in the form of special levies or special assessments,” he said. “In Ontario, they are contributing twice as much every month to their reserve fund than we are.”

Ontario requires condo corporations to contribute an amount “reasonably expected to cover future repairs and replacements” as determined by reserve fund studies, according to Condominium Authority of Ontario.

OctoAI estimates that in BC, 135,000 condo owners will face a special levy that averages nearly $7,500 per unit this year, said a report on the company’s Eli Report document review platform.

Special assessments aren’t all that special in BC, Beattie said.

“They should give it a new name, because when we’ve done the math, the average homeowner needs to budget over $2,000 a year, every year for the next decade, towards these fees,” he said, adding that it’s closer to $3,000 for older buildings.

Every strata corporation must have contingency funds to pay for common expenses that usually occur less often than once a year, or which do not usually occur, says the BC government’s website. Starting Nov. 1, 2023, strata corporations were required to annually contribute a minimum of 10% of the annual operating fund to the contingency reserve fund.

Operating expenses address recurring maintenance that occurs frequently or annually, such as carpet cleaning or roof maintenance. The strata corporation ownership approves these expenditures as part of the annual budget by majority vote and pays for them via strata fees.

Capital expenditures, on the other hand, are expenses that typically happen less than once a year and are not part of maintenance. An example would be carpet or window replacement. Strata corporation owners generally approve capital expenses at a general meeting separate from the budget approval.

Special levies have historically been the most common way of funding capital improvements, said Sean Ingraham, senior vice-president with property manager FirstService Residential (FSR).

A strata corporation with a failing roof, for example, would typically get a few estimates for replacement, and the strata corporation would then propose that the owners approve a resolution to pay for it by special levy at a general meeting, with each owner to pay their proportionate share.

There are many variables. It could be a mixture of using reserve funds and a special levy, and payments could be spread out over multiple months, Ingraham said.

Depreciation Reports Mandatory

Depreciation reports play a key role in forecasting, Ingraham said. They provide the condition of all capital assets and components of a strata corporation, and estimate how long each asset will last until it needs replacement. The depreciation report generally includes different funding models that are typically a mixture of reserve funds and special levies, he said.

The strata corporation ownership can then create a plan of how much they are going to need in their contingency reserves versus special levies.

“This gives great insight to potential purchasers and the owners so they can financially plan accordingly,” Ingraham said.

New legislation was passed last year in BC aimed at strengthening depreciation reports for strata corporations. Previously, obtaining these reports could be deferred repeatedly as long as three-quarters of a strata corporation’s owners voted annually in favor of deferral, said a July 23, 2024 article by law firm Lawson Lundell LLP.

Updated regulations that took effect July 1, 2024 have now removed the option for deferral. All existing strata corporations with five or more strata lots are now required to obtain depreciation reports on a five-year cycle, the firm said.

New strata corporations established between July 1, 2024 and July 1, 2027 must obtain a depreciation report within two years of their first annual general meeting, and new strata corporations established on or after July 1, 2027 must obtain one within 18 months of their first annual general meeting, the firm said.

“Additional specific content requirements have also been included, in order to help standardize the information which these reports contain,” the firm said.

FSR’s Ingraham said the provincial government’s efforts to improve strata finances may be working. FSR manages more than 72,000 homes in BC, and more than 95% of them have depreciation reports versus about 60% three years ago, he said. Contingency reserve funds for FSR clients have also increased over the past two years.

“Although not all our clients are thrilled with the increase in contingency reserve fund contributions and cost of creating a depreciation report overall, it is improving the financial health of strata corporations in BC,” said Ingraham.

“Long-term, this will reduce the need for many special levies, and aging buildings can be better cared for as funds will be available to address aging strata corporation assets.”

Many BC Condo Owners Facing Depleted Reserves, Special Levies by Jami Makan | BIV