Buying a condo in Vancouver means that you are investing in the building. It is very important that a buyer and the buyer’s agent thoroughly read the strata documentation. Strata documents outline the building’s history and maintenance operations. The listing agent for the condo for sale must provide a minimum of 2 years history of strata documents. These documents will give a general overview of the buildings politics, community, operation and maintenance. Here are some important points to keep in mind when reading condominium strata documents:
1. Operating Budget
The operating budget/financials will outline in detail how the building operates financially. When reading the financials you want to confirm that the building is operating on an annual basis without a loss. In fact, the annual surplus of funds should be approximately 10 percent per year. The surplus of funds is placed in the Contingency Reserve Fund CRF. If the financial statements show there is no surplus of funds or even a deficit of funds on an annual basis this is a red flag.
2. Contingency Reserve Fund (CRF)
A healthy CRF is very important. In buildings with 100 condos or more I like to see a minimum of $1000.00 to $1200.00 per condo in the CRF fund. In a building with a 170 condos a good CRF would be approximately $204,000.00.
In smaller buildings the amount in the CRF should be aligned with the age of the building and any upcoming maintenance or repairs. I like to look ahead to a minimum of 5 to 10 years and what type of maintenance or updating will be needed on building. I also like to ask how the CRF fund has been funded over the past years. Two questions I ask are has the CRF been funded by a consistent annual surplus of funds or has it come from past special assessments.
3. Strata Fees
The strata fees of a condo should be approximately 38 to 40 cents per square foot of the legal strata square footage. A condo with a legal square footage of 1275 @ 38 cents per square foot will have a maintenance fee of $484.50 per month. If the strata fees are unusually low it is important to refer to the CRF and operating budget as well as the Depreciation Report and any Engineers Reports. If the CRF is low and the building is due for any maintenance or updating you can most likely expect a special assessment. Unusually low maintenance fees can be a problem. If the maintenance fees are high, the strata may be saving for future maintenance or updating. Some buildings are also expensive to maintain and require higher maintenance fees. Higher maintenance fees can be a sign of a well-run building but further homework must be done to validate the higher than usual fee.
4. Minutes of Meeting
The minutes of meetings will tell the story of how the building operates both politically and as a community. I emphasise take your time to read all the minutes. There will also be yearly Annual General Meetings – AGM. The AGM will outline the important points of how the building operated over the past year and will outline key points that are to be addressed in the next year. Check to see if there has been any Special General Meetings – SGM. SGM’s are special meetings to address any concerns that need immediate attention.
5. Depreciation Report and Engineers Report
The Depreciation Report will give a detailed outline of a maintenance plan for the building over the next 30 years. This report will give a timeline and cost for all future maintenance and updating. This is an extensive report and refers to a manual of the economic cost of the life of a building. This is a great tool when one wants to know what sort of cost to expect and to be incurred by their investment over a period of time.
An Engineer’s Report will outline the current condition of the building and any areas that are of immediate concern. These reports are often extensive and are also done on newer buildings at 4 years and 9 years of age to coincide with the developers 2, 5 and 10 year warranties.
6. Strata Plan
The strata plan is the legal document filed at the Land Title Office; it shows the square footage of the individual condos as well as all the common areas and limited common areas within the building. This document is required when confirming the legal square footage of the condo. Remember, current market value of a condo is based on the dollar per square foot of the unit (please refer to my recent article about legal advertised strata square footage). The strata plan will show how the parking and storage locker is allocated to the condo. You want to know whether is it common property assigned to the condo or if it is limited common property assigned to the unit. Another new area to check on the strata plan is whether the developer retained any ownership of the building and is leasing back those areas. Recently some developers have been retaining ownership of the elevators, underground parking and rooftops and doing 99 years leasebacks to the strata corporation. These lease backs will be an issue as the building gets closer to the end of the term of the 99 year lease.
The building bylaws are a list of rules that outline the policies for all owners and tenants. This will give you a good idea if you want to be a part of the building’s community. If you have pets or have plans of renting the condo out in the future check the pet and rental restrictions. The by-laws within a building can have many rules and regulations and I highly recommend thoroughly reading this document.
Condos for sale in Olympic Village and condos for sale in Mount Pleasant offer many developments that differ in architecture, structure, age and density. If you have any questions with any condo development or strata building please call me.
I have been helping condo buyer and sellers since 1987 in Vancouver East and Vancouver West.