How to Invest the Money in the Contingency Reserve Fund

depreciation report; depreciation reports

By Gina Arsens, CA, CBV, CRP

Saving money is a key part of what a depreciation report is about.  The requirement to obtain a depreciation report has made the importance of saving for future repairs top of mind for Strata living.  It is estimated that Strata councils in BC will be managing a substantial amount –soon to be several billion dollars in assets.

As a result, Strata Property Regulations have been updated to define how Strata corporations can invest their savings.  Section 6.11 of Strata Property Regulations has been rewritten and effective July 16, 2014, outlines permitted investments for money held in the contingency reserve fund or collected on special levies.

Many Stratas have been putting their investments in low interest bank savings accounts, which have been at some of the lowest levels in history.  If Strata corporations can earn more than the savings rate it means that there will be less future fees for Strata owners.  Based on feedback and in order to simplify and improve the rules around investments, changes were made.

The permitted investments are easier to understand and more current to today’s environment. They are still considered to be safe investments.  Highlights of the permitted investments are:

  1. Savings or chequing account outside of BC and insured by the Canada Deposit Insurance Corp. (CDIC)
  2. Term deposit or GIC’s insured by CDIC with a fixed interest rate
  3. T-bill issued by the government of Canada
  4. Bond, debenture or other debt issued by Canada or a province or a company as long as the debt:

a)    is less than 5 years to maturity
b)    Based in Canadian dollars
c)    The debt has a DBRS rating of A or higher

  1. Fixed Income exchange traded fund, trading on a Canadian Exchange if:

a)    the fund doesn’t have securities (stocks) – just bonds or debenture or other debt
b)    The funds are in Canadian dollars
c)    Term to maturity is 5 years or less
d)    98% of the value of the holdings have a rating of BBB or higher

It should also be noted that if the Strata has invested its funds in instruments based on the past regulations, there is a grandfathering provision.

This blog post is provided to provide highlights from the regulations.  For advice and further information, please consult your investment advisor and the Strata Property Regulations.

What are Sectioned Stratas?

Content by the Real Estate Council of British Columbia.  To view the original post, click here.  

Although the Real Estate Council does not enforce the Strata Property Act (the “SPA”), to appreciate how the requirements of RESA and the Council Rules apply to strata corporations with sections, it is helpful to understand the provisions of the SPA that govern the creation of sections.

Creation of Sections

The SPA permits the creation of sections in order that the different interests of owners of residential and non-residential strata lots, owners of non-residential strata lots used for different purposes, and owners of apartment style, townhouse style or detached strata lots may be represented. Sections are created by bylaws established by the developer at the time the strata plan is filed, or subsequently by an amendment to the bylaws approved by a 3/4 vote of each of the groups of strata lots intending to form a section and a 3/4 vote of the strata corporation.

Notwithstanding the creation of sections, the strata corporation retains its powers and duties in matters of common interest to all owners. Thus, even if sections are created, the strata corporation continues to exist and is required to function in the same manner as any other strata corporation by holding general meetings, electing a strata council, approving a budget, and collecting strata fees for those expenses that are common to all strata lots. The items for which a strata corporation will be responsible and for which it must collect strata fees will vary depending on the structure of the development, however, at a minimum, the strata corporation will be responsible for obtaining insurance as required by SPA and collecting strata fees to pay the insurance premium.

Powers and Duties of a Section

The SPA provides that once created, a section is a corporation and has the same powers and duties as the strata corporation in respect of matters that relate solely to the section. As a result of this provision, once the bylaws creating sections are filed in the land title office, each section identified in the bylaws is a separate corporation. Thus, each section is a separate legal entity. The fact that each section is a corporation and thus a legal entity, is extremely significant. Because each section is a separate legal entity, the section is equivalent to a strata corporation in respect of matters that relate solely to the section as set out in section 194 of SPA. Sections are often referred to as “mini” strata corporations. The SPA sets out that a section has the power and duty to:

  • Establish its own operating fund and contingency reserve fund for common expenses of the section
  • Budget and require section owners to pay strata fees and special levies for expenditures the section authorizes
  • Sue or arbitrate in the name of the section
  • Enter into contracts in the name of the section
  • Acquire and dispose of land in the name of the section
  • Enforce bylaws and rules

Once a section is created, the SPA contemplates that the section will operate independently of the strata corporation. The section must establish a budget for expenses the section authorizes and must establish its own operating and contingency reserve fund.

Administration of a Section

The SPA provides that the eligible voters of a section may call and hold meetings and pass resolutions in the same manner as the eligible voters of the strata corporation. This provision is further evidence that a section is to operate as a “mini” strata corporation.

The SPA also provides that each section must elect an executive for the section. The executive has the same powers and duties with respect to the section as the strata council has with respect to the strata corporation.

Practical Effect on Governance

Once bylaws have been filed creating sections, each section is a legal entity. Each section must hold (or waive) an annual general meeting to elect an executive and to approve a budget for the common expenses of the section that are authorized by the section.

Although it is often common practice for strata corporations with sections to have one AGM for the strata corporation, and for the budget approved by the strata corporation to contain expenses for the sections, such a practice does not conform to the SPA. To comply with the SPA each of the strata corporation and sections must hold (or waive) the AGM at which time the budget for the legal entity that called the meeting must be approved and a strata council or executive, as appropriate, must be elected.

The Real Estate Council of British Columbia (Council) is a regulatory agency established by the provincial government in 1958. Its mandate is to protect the public interest by enforcing the licensing and licensee conduct requirements of the Real Estate Services Act. The Council is responsible for licensing individuals and brokerages engaged in real estate sales, rental and strata property management. The Council also enforces entry qualifications, investigates complaints against licensees and imposes disciplinary sanctions under the Act. Visit www.recbc.ca for more information.  

Do you live in a sectioned strata that requires a Depreciation Report?   Click here to request a free, no-obligation proposal from Normac.  

Can One Small Group of Owners Block the Strata from Selling?

In British Columbia, an estimated quarter of the population lives in jointly owned housing. With the province’s older condominium developments approaching the 50 year old mark, there has been increasing contention surrounding the BC Strata Property Act’s requirement that 100% of owners agree to the sale. A recent decision by a Supreme Court Judge highlights how BC’s legislation may be revisted in the near future.

Shared property owners in North Vancouver can force sale, B.C. Supreme Court rules
Content By Frances Bula, The Globe and Mail. To read the article as it originally appeared in The Globe and Mail, click here.

A Supreme Court judge has ruled that a majority of owners in a strata-type project in North Vancouver can ask for a sale of the whole property, even if a minority says the sale will force them out of the only affordable homes in their neighbourhood.

That adds one more decision to an increasingly contentious issue in British Columbia – how to deal with jointly owned properties in a province where a quarter of the population lives in collectively owned housing, largely stratas.

The issue is so thorny and prevalent that the B.C. Law Institute is working on a research project to look at how to improve the law in B.C. for dissolving strata corporations.

Lawyers for both groups at Seymour Estates, near Capilano University, say the decision by Supreme Court Justice Lauri Ann Fenlon put conditions on the order that require the final sale price and buyer to be approved by the court.

But the door is still firmly opened for 87 owners in the 114-unit project, who have been courted by Darwin Construction Ltd. of North Vancouver the last three years, to sell the entire seven-acre parcel. Seymour Estates, built in 1970, is not a strata under current B.C. law, but has an ownership model similar to a strata.

The court ruling is an important decision because it makes it clear that one small group of owners cannot block everyone else from selling, said Peter Roberts, the lawyer who acted for the pro-sale group.

John Whyte, who represented the small group of owners resisting, said the ruling Friday by the judge drew an “audible gasp” from the standing-room-only crowd.

For his clients, he said, “it was really their only option into the market in this neighbourhood.”

He and his clients are hopeful about Justice Fenlon’s conditions, which are meant to ensure the owners get the best possible price. That price will be scrutinized in the second legal round, to determine the impact for existing owners, Mr. Whyte said.

“Then we will know if people will be dislocated. They can compare that number for what they could buy in the area.”

Many residents in the complex didn’t want to speak publicly about where they stand on the issue. But some said they felt many owners didn’t understand that the Darwin offer was not the best deal they could get.

Darwin confirmed it is offering owners about 30 per cent more than they could get on the market right now. But if Darwin is successful in getting the land rezoned, the property will be worth significantly more than that. The area is slated for increased density, according to the District of North Vancouver’s official community plan.

One resident, however, said she’ll be happy to sell and get out.

“These are really nice places but everything is going wrong with them,” said Susan Watson, who has lived at Seymour Estates for 18 years. “If we stay, we’re going to be hit with a huge special levy. There’s plumbing trucks here every day.”

The dilemma of selling jointly owned properties has been rising to the surface, as the province’s older condos and jointly owned properties approach the 50-year mark and as builders hunt for low-density tracts near transit that they can redevelop.

The current B.C. Strata Property Act says that a strata-owned property can only be sold as a whole if 100 per cent of the owners agree.

“It’s very difficult to get to that point,” said Kevin Zakreski, the staff lawyer with the B.C. Law Institute working on the project to find a better mechanism.

At the moment, if there is anything less than unanimity, the group of owners wanting to sell have to go to court to try to get a sale ordered – an expensive, time-consuming procedure.

Two years ago, a group from an older North Van project, Cypress Gardens, tried to get a sale ordered, but were turned down because the judge said they didn’t represent a majority and they’d create too much hardship for those who didn’t want to sell.

Mr. Zakreski said B.C.’s rules are more onerous than those of other provinces, which typically allow a sale to be completed by the strata council if around 80 per cent of owners agree.

The law-institute project is going to go out for public consultation later this year.

Useful Links:
BC Strata Property Act