How To Read Strata Documents & What Buyers Should Pay Attention To
The most reoccurring question that I get asked by my clients when purchasing a strata property is "what do I look for as a buyer when reviewing strata documents" or "how do I properly read and understand strata documents as a buyer."
Firstly, if your real estate agent is not also reviewing the strata documents, I would question this. After seeing hundreds and hundreds of transactions, real estate agents should be well versed with strata documents and where the red flags may be found. My services as a real estate agent include thoroughly reviewing and reading all strata documents. It is however important that buyers also understand these documents themselves as they provide essential information about the strata corporation, its finances, rules and regulations, and the overall health of the property. Here is my buyers guide on some of the key elements that you need to pay attention to when reviewing strata documents.
Form B Information Certificate:
Every strata lot will have a Form B Information Certificate (Form B) associated with the property of interest. This is an essential document that you need to review, as it holds all of the specific details corresponding to the subject property. The most crucial being:
Parking stall(s) & parking stall number(s)
Storage locker(s) & storage locker Number(s)
Current monthly maintenance fee
Current amount in the Contingency Reserve Fund (CRF)
Current number of rentals in the building
Current amount of money the seller owes to strata, if any
Any agreements which the seller takes responsibility for updates & renovations
If strata has passed any resolutions
As a buyer, you need to make sure that all of the information on this document matches the listing information and your expectations. For example, if a listing says 1 parking, but it is not outlined on the Form B, the Form B takes precedence over everything else. This document should also be recent, within the last 30 days.
Strata Council Meeting Minutes:
Meeting Minutes can be broken down into three main areas:
strata Council Meeting Minutes (SCM)
Annual General Meeting Minutes (AGM)
special General Meeting Minutes (SGM)
As a buyer, it is mandatory that you have access to all strata council minutes that have occurred in the past two years. These minutes can help identify any recurring problems or potential conflicts that might impact your ownership experience. Looking for signs of proactive management, prompt response to maintenance issues, and effective communication among the strata council members is a great way to start. These documents will also highlight any on going issues, recent repairs/maintenance, and any disputes or legal matters affecting the property. I always suggest for my clients to pay attention to if the unit number they are purchasing, and the surrounding properties, is mentioned in the minutes. This will provide helpful insight on if there have been renovation requests, leaks, maintenance updates, etc. in the past two years that you will definitely want to be educated on as a potential buyer.
Furthermore, each strata will decide how often they hold council meetings - you may see SCM for each month, quarter, etc. This is normal. As indicated in the title, AGM's are held annually and this meeting is where all the owners get together to discuss the strata, the year ahead and any maintenance. You will find information on potential levies, special assessments or anything else that requires an owners vote for approval. Lastly, SGM are only held if there is a pressing issue that the strata council would like the owners to vote on or raise money for - often a special assessment. These meetings are held in the case that waiting for the AGM to come around to vote on the topic is too far away. If the property you are looking at does not have any SGM minutes, this is likely a positive sign.
Bylaws and Rules:
Strata corporations operate under a set of Bylaws and Rules that govern the property. Bylaws are required by all strata properties, but Rules are additional enforcements that strata's can chosen to implement. If the building you are purchasing at does not have any Rules, and just contains Bylaws, that is no problem. Rules are often added for common property spaces, such as gyms and pools.
As a buyer, you should carefully review these documents to understand the restrictions, obligations, and rights associated with the property. Look out for any regulations that might affect your lifestyle or intended use of the property, such as pet restrictions, rental policies, or noise restrictions. Understanding these documents will help you determine whether they align with your preferences and lifestyle. For example, some properties may not allow hard services, only carpets - the last thing you would want as a buyer who loves hardwood flooring is to find out that this won't be possible once you have already purchased the home.
Financials:
Examining the financial health of a strata corporation is vital to ensure its long-term sustainability and to avoid any unforeseen expenses. The strata documents should include financial statements, budgets, and sometimes contingency reserve fund reports. Pay close attention to the corporation's financial statements to assess its revenue, expenses, and any outstanding debts or liabilities. Review the contingency reserve fund report to determine if sufficient funds are allocated for future repairs and maintenance. A well-funded reserve fund may be crucial for assisting with the coverage of major upcoming expenses, such as roof repairs, building envelope maintenance, or elevator upgrades.
Depreciation Reports and Warranty Reports:
In BC, strata corporations are required to prepare a depreciation report every three years. However, strata's can vote at the AGM to forgo getting the report and postpone it. This report provides a comprehensive assessment of the property's major components, such as the building structure, systems, and common areas. It outlines their current condition, estimated lifespan, and projected costs for repairs or replacements. Reviewing the depreciation report helps you understand the long-term financial planning of the strata corporation and anticipate any future levies or special assessments that might be necessary. Do keep in mind that Depreciation Reports help guide what may be expected in years to come, not necessarily what is for sure going to get repaired in the suggested year.
If you are purchasing in a newer building, you might have access to the 15-month, 5 year and 10 year (depending on your buildings age) Warranty Reports. These documents will help you better understand structural repairs and anything else the developer has updated or will be covering under the 2/5/10 year warranty period. These reports can help provide insight on the building structure and quality.
Insurance Coverage:
Insurance coverage has become increasingly important. It is essential to review the insurance policy of the strata corporation to understand the level of coverage provided. Inquire about deductibles, policy exclusions, and whether the policy includes full replacement cost coverage. Pay attention to any recent claims, the corporation's claims history, and the availability of coverage for common risks like water damage, fire, or liability. In regions prone to natural disasters, such as earthquakes in Vancouver, it is crucial to ensure that adequate coverage is in place. You don't want to be hit with high insurance costs by ignoring this document!
By thoroughly examining strata documents buyers can make informed decisions and understand the potential risks and benefits associated with the property. You should consult your real estate agent with any questions or concerns that you have to ensure you have a comprehensive understanding of the strata corporation and the property's overall health before making a purchase.
If you need assistance in your real estate purchase or are looking for consultation from a trusted agent, I would love to connect and answer any questions you may have!