Depreciation Report: How To Use It

    So, you’ve received your most recent depreciation report. Now what do you do with it? While it’s obvious to use the depreciation report for planning your strata fees and preparing to save for your reserve fund, the report is a much more comprehensive tool than that. It should be additionally used to ensure assets are well taken care of and repairs are appropriately anticipated. A depreciation report establishes an inventory of assets, sets a schedule for short and long term projects, and should be reviewed annually for budgeting purposes and maintenance checklists.

    Tony Gioventu, resident strata expert for The Province and Executive Director of CHOA,  recently highlighted why a depreciation report should be reviewed annually: stratas are then able to prepare 5-year project plans that includes consulting services, not just repair work. In his Condo Smarts column, a council member explained that two items had been put into their budget for approval at their AGM – roofing repairs for $135,000 and fire safety upgrades for $22,000. These were put in for approval the same year they were to be completed based on the amount reported in their 2-year old depreciation report. The owners’ concerns were twofold; how did they know the budgeted amounts were accurate given the time passed since receiving the quotes and how much money could be approved based on the depreciation report.

    Gioventu explained that in a strata’s 5-year plan, any projects identified for repair should be initiated in the year prior to the work being completed. This way, a consulting service can be included in the prior year’s budget and the strata can obtain current quotes, highlight additional deficiencies, and outline a project plan. Doing this would ensure that in the year the work is to be completed, the strata council would be able to propose actual amounts to the owners for approval in the annual budget. Gioventu illustrates another benefit of this strategy, “One other aspect of the consultant’s work is to advise you on the complete scope of work to avoid any duplication of future cost and work.”

    His example shows budgeting for consultant work for roofing repairs in year one. When the consultant completes the inspection, the actual cost of the roofing repairs are expected to exceed costs projected in the depreciation report. This is because the consultant recommends that the strata also replace the building’s skylights at the same rather than waiting till their renewal date, as it’s more economical to do so. In year two, the strata is able to correctly propose the cost for repairs to the roof and skylights to the owners for approval.

    Gioventu also clarifies that while the depreciation report offers important estimates regarding what projects are to be done, when, and an approximation on how much each will cost, the depreciation report does not have any regulating authority over what the strata can approve in their budget. In other words, it is the fiduciary duty of the strata council to verify quotes at the time the project is due for repair, renewal, or maintenance.

    Normac recommends that stratas prepare a 10-year capital plan, an annual maintenance checklist, and a short term (3-year) renewal plan. This allows the strata council to stay on top of deteriorating assets, adjust the plan as necessary, and be able to effectively communicate with the owners about remediation projects.

    Reviewing your depreciation report annually is an easy way to get the most out of the report. You can find additional information about the 10 year capital plan, short term renewal plan, and a sample maintenance checklist in our E-Book, Making the Most of the Depreciation Report.