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Condo buildings dodge new disclosure rule
Many condo buildings in B.C. are believed to be opting out of a provincial government directive to get a depreciation report that gives owners and prospective buyers a warts-and-all assessment of deficiencies and expected long-term expenses.
Industry insiders believe many strata councils voted by a required 75 per cent margin to exempt themselves from the requirement, which was passed by the province in 2011 and took effect last December.
Mike Laporte, a partner with property appraisal firm NLD Consulting-Reserve Fund Advisors, estimated just 20 to 25 per cent of condo buildings have commissioned depreciation reports.
"That's a guess," he said, but added he's heard similar estimates from competitors.
Buildings that have opted out must conduct new exemption votes every 18 months.
Laporte expects subsequent votes will result in more buildings eventually getting depreciation reports, putting additional pressure on holdout condo buildings to follow.
"Without the report it may appear there's something undue to hide," Laporte said.
He said some stratas think their building is in great condition so they don't need a depreciation report, but don't realize a good report can give them an edge over others when unit owners wish to sell.
The province amended the rules in the wake of the leaky condo crisis to shed more light on the physical condition of aging buildings and the preparations of their strata councils to cover the eventual cost of major repairs.
Laporte said some stratas initially worried about the cost of getting a report due to the high demand for them or that too few professionals were qualified to perform them.
Tony Gioventu, executive director of the Condominium Homeowners Association of B.C., is more optimistic about strata uptake, estimating 30 to 50 per cent of condo buildings now have at least commissioned a depreciation report.
He said the association is getting a few complaints each day from condo owners who can't sell their units because their strata doesn't yet have one.
Gioventu predicts the fallout for buildings without a report will extend to more stringent and costly terms – if not refusals – for prospective unit buyers from lenders and insurers.
While many strata councils fear bad news from the reports, he said the regulation change is good because it brings better protection for buyers and more certainty about future costs for owners.
"What we have is a rapidly aging housing stock coupled with low cash reserves, so we are seeing older buildings that have significant unanticipated special levies," Gioventu said.
A 35-year-old Burnaby condo complex he visited last month is facing a $27,000-a-unit special levy to replace its decking and siding.
"It's because they've ignored their building. They simply haven't done maintenance in the last 15 years."
A strata may not be on financial track to cover a $100,000 elevator replacement in 10 years time, he said, but at least a depreciation report will lay out what residents can expect.
"Everybody wants the same thing when it comes to real estate and that's certainty," Gioventu said. "The leaky condo issue was really about being the victim of a failure or an emergency. Depreciation reports help to eliminate that risk."
He said he believes the number of stratas actually voting to exempt themselves from the new rules is less than five per cent.
Some others stratas are on a wait list for a report, he said, or plan to get one but haven't yet raised the money.
James Balderson, a long-time advocate for leaky condo owners, said prospective condo buyers should insist on seeing a depreciation report if it exists.
The absence of a report should be a red flag, he said.
"If they don't have one and they don't want to know what the score is, why should you as a purchaser assume those risks without knowing what the risks are?" Balderson asked.
The provincial government provided more than $670 million in interest-free loans to help owners finance repairs to 16,000 leaky condos during the 2000s.
As for suggestions a second wave of leaky condos is on the way as depreciation reports expose unfunded building problems, he said the issue never really went away.
"There was only one primary wave from about 1980 to 2000, but the problem is only maybe half of them are properly fixed," Balderson said. "There are plenty of problems you can still buy into."