Strata Document Review – Condos and Townhomes in Victoria, BC

So, you decided to buy a strata condo or townhome somewhere in Greater Victoria.  Congratulations!  The lock and leave lifestyle of a condo, along with prices that are more affordable than single family homes can make condos and townhomes in Victoria, Oak Bay, Saanich and Sidney very appealing.

After several months of looking, you found the perfect home and decide to make an offer with a few of the typical conditions including finance, inspection and review of strata docs.  Your mortgage broker is helping you with financing, the home inspector has been hired, and your real estate agent just sent you what seems like over a 1000 pages of strata documents.

Do you need to read all the strata documents before removing this condition on the purchase?

YES!

Strata documents tell you about the financial health of a condo or townhome development, the condition of the common property e.g. the building and its major systems, any rules or bylaws that must be adhered to as an owner and give insight into how well the strata is managed.  As your Realtors, we will also review the documents so we can highlight red flags and answer any questions that came up when you reviewed the documents. However, you must also take responsibility for the review of the strata documents.

Given the price of a townhome or condo in Victoria, this is information that you need to read and understand before releasing conditions and proceeding with your purchase.  Not reading the strata documents is a mistake that could end up costing you a lot of money and frustration. For extra peace of mind, you can also ask your lawyer or hire an outside service like Condo Clear that specializes in strata document review to help.

As a potential buyer of a strata in British Columbia you are entitled to review the following strata documents:

• 2 years of minutes, annual general and special meetings
• 2 years of financial documents
• current Form B
• current bylaws and rules
• details of any litigation the strata is involved with
• all depreciation and engineering reports
• all legal opinions obtained by the strata corporation in the past 5 to 6 years
• strata plan
• Schedule of unit entitlement
• Schedule of voting rights

What are some of the questions you should be asking yourself as you are reading the strata documents of a condo or townhome that you are considering buying? And what are some of the strata document red flags or warning signs you should be on the lookout for?

Bylaws

All strata corporations in BC have bylaws that apply to owners, tenants, and people living or visiting owners and tenants.  Some stratas adopt the standard bylaws attached to The Strata Property Act.  If a strata is not using the standard bylaws or makes changes to their bylaws; they must be filed with the Land Title Office. Here are some of the questions to ask yourself when reviewing strata bylaws:

• Do the bylaws contain provisions to divide the strata corporation into sections or types?
• What are the current restrictions with respect to age, rentals, pets, and use (e.g. home business)?
• Are there any parking bylaws?
• Have any repair or maintenance obligation bylaws been added that
  • Are illegal i.e. make the owners responsible for the repair of the common property?
  • Leave no one responsible for the repair and maintenance of key portions of the building?
  • Are not typical for the strata lot or LCP?
• Are there any alteration/renovation or decoration bylaws that could affect your decision to purchase the unit?
• Do any of the restrictions make the unit unsuitable for purchase?

Depreciation Report

The strata depreciation report reviews the current condition of the major building components of the strata e.g. roof, envelope, elevator, etc.  The depreciation report sets out an estimate of when major repairs and replacements of the components of a building need to be done over a 30-year period.  It also reviews how much money is currently in the contingency fund, what the likely cost for future replacements will be, and provides three financial models outlining how the strata could fund these costs.  Here’s what to consider when reviewing a condo or townhome’s depreciation report:

• Is the depreciation report current?  Depreciation reports for strata condos and townhomes should be done every 3 years
• Have the strata owners voted to waive the depreciation report? If so, why?
• Was the depreciation report done by a qualified person who has insurance?
• Does the depreciation report include at least three financial models?
• Does the proposed repair model in the depreciation report indicating who is responsible for funding certain repairs match the bylaws?
• Is the depreciation report complete i.e. is the inventory of building components complete and accurate?  For example, is roof or building envelope missing or is the number of strata units or sections inaccurate.
• Does the depreciation report recommend further investigations or an engineer’s report on specified building components of the condo or townhome?
• Does the report recommend any major expenditures within the next five years?

Engineering Report

An engineering report for a strata contains an analysis of one or more of a strata building’s components e.g. building envelope, structure, mechanical systems, electrical systems, improvements or equipment.  When reviewing engineering reports for a strata, ask yourself:

• Are there multiple engineering reports from multiple companies? Why?
• Did you notice visual deterioration e.g.  rotting decks, wall cracks, etc. and have these issues been mentioned in the strata minutes and are they being addressed in the depreciation or engineering reports?
• Has strata corporation allocated money for reports and/or maintenance called for in the engineering report?
• Does the engineering report’s scope of work seem too narrow or is further testing recommended?
• Does the engineering report for the strata require large expenditures to repair issues with the building?

Financials

The financials of a strata corporation include budget and monthly expense reports. Here are some of the red flags you should watch for when reviewing the financial documents of a strata condo or townhome:

• Are the fees in accordance with Strata Property Act?
• Does the budget match the bylaws with respect to the allocation of costs between the types of strata lots and sections
• Do the financials indicate that strata corporation has both high deductibles and high legal fees? High deductibles and budget items for insurance deductibles may indicate issues like water leaks.  High legal fees may signal a history of litigation
• Is the repair and maintenance budget for the strata very small or very large?
• Do the line items in the strata’s financials (e.g. cleaning, electricity, property management, professional fees, etc.) indicate significant under-expending or over-expending?
• Are there are significant surpluses or deficits in the strata’s budget?
• Is the strata corporation spending money from an accumulated surplus? If the strata is using the previous year’s surplus in the budget, artificially low strata fees may increase dramatically. Large surpluses may indicate little or no preventative maintenance on the common property
• Are special levy funds being carried forward from the previous year? If yes, this could indicate that ‘projects’ are not being done.
• Does the contingency reserve fund (CRF) contain an amount of a least 25% of the operating budget?
• Are there any planned expenditures from the contingency reserve fund in the next fiscal year?
• Has the strata corporation borrowed money?
• Does the strata corporation own any real property?
• Are there any big accounts receivables (i.e. unpaid strata fees)?
• Are there any questionable line items (i.e. Spending on automotive budget, travel expenses, etc.)?

Form B

The form B is an information certificate that discloses a variety of information about a strata lot and the corporation including: strata fees, any amount the current owner owes, any special levies that have been approved, any amendments that are not yet filed  at land titles, any court proceedings, balance of contingency reserve fund, etc.  Here are some of the questions, you should be asking when reviewing a Form B on a condo or townhome:

• Is the Form B current?  A Form B should be no more than 30 days old.
• Are all sections of the Form B complete?
• Do the strata fees on the Strata Lot’s Form B agree with the schedule of entitlement?
• Does the information in the Form B reflect what’s going on in the minutes with respect to ongoing litigation, changes, potential budget deficit, bylaws, and special levies?
• Does the information on parking and storage on Form B align with the strata plan?
• If there are strata sections have you received a Form B  for the applicable section and the entire strata?

Strata Insurance

In January of 2020 the landscape with respect to the insurance on strata buildings changed radically. Some buildings have seen huge increases in their premiums and deductibles, while other buildings are finding it very difficult to get any insurance at all. On the other hand, we have been involved in sales in buildings where the insurance has gone up a manageable 20% or so. Before you remove your conditions on any strata purchase, you should be inquiring into the status of the insurance carried by the strata.

• What is the strata insurance renewal date?
• Can you get a copy of the claims history?
• How much is the strata deductible?

Minutes

Strata corporations typically hold monthly meetings and are required to take and circulate the minutes from the strata meetings.  Not all strata corporations meet monthly, so the first step is to make sure you have minutes.  When reading through the strata minutes ask yourself?

• Are any strata minutes missing?
• Do the strata minutes seem too simple or vague?
• Is there consistency in the strata meetings? Does the content or presentation of the minutes indicate a disorganized strata or is it possible that they are trying to hide something?
• Are there noise complaints regarding hard surface floors?
• Is there a recurring issue/complaint experienced by one or more strata owners?
• Has there been a recent or frequent change of an engineer, property manager or lawyer mentioned in the strata minutes?
• Do the strata minutes reference a report, legal opinion or strata document that you do not have?
• Is there a reference in the strata minutes to legal actions that have not been disclosed in the Form B?
• Are there any references to an issue in a specific strata lot in the townhome development or condo building that would be a concern to you as a new owner?

Strata Plan

A strata plan is the official plan of the strata-titled property. It is registered at the Land Title Office and shows boundaries of each strata lots (i.e. condo, townhome, bare land), unit entitlements, common property and limited common property. It is important to ask yourself the following questions when reviewing the strata plan of a condo or townhome you are considering buying:

• Do you have the filed copy of the strata plan?  If you are purchasing something that is not yet built the plan may not be registered yet.
• What type of strata is it i.e. Building strata plan or bare land?
• Are there any easements, restrictive covenants or right of ways that would affect your decision to purchase?  This may be more relevant in the case of a bare land strata.
• Does the physical layout of the condo or townhome you are wanting to buy match the “strata lot” description on the strata plan?
• Does the condo or townhome you are considering have designated common property, or limited common property that may affect your buying decision? E.g. is the patio or parking limited common property vs part of the strata lot.
• Are there discrepancies between the MLS listing and what is reflected in the strata plan, when it comes to size, layout or features?
• How is the parking and storage shown on the strata plan? And how are they designated to the strata lot?
• Are there any common facilities in the strata?

Strata Rules

Strata rules are different from strata bylaws.  Rules can be created to govern use, safety and condition of common property and common assets. Examples of some common rules include permitted use of common property i.e. a meeting room, the leashing of pets in common areas, and the booking of an elevator for moving.  If a rule conflicts with a bylaw, the bylaw prevails.

• Do any of the rules restrict use of common property and does this restriction affect your purchase decision?
• Are there any rules that contradict the current bylaws of the strata corporation?

Schedule of Unit Entitlement for Stratas

Unit entitlement is a number assigned to each strata lot (i.e. townhome or condo) that determines the share of common property and assets belonging to each owner.  It is a key factor in calculating the share of strata corporation expenses and liabilities that each strata lot owner will be responsible for including strata fees and any special levies.  When reviewing the schedule of unit entitlement for a strata condo or townhome you are considering, here are some of the questions you should ask:

• Have the strata fees and any other costs been allocated in compliance with the schedule of unit entitlement?
• Has a section 100 resolution been passed overriding the application of the schedule of unit entitlement for one or more expenses?
• Is there anything atypical in the Schedule of Unit entitlement e.g. an equal division of cost amongst units, where the units are vastly different in size from on to the other?

Schedule of Voting Rights

A Schedule of Voting Rights for a strata is a form registered with the strata plan that sets out the number of votes per strata lot. Normally residential lots have only one vote.

• Is there one strata lot, or type of strata lot, that dominates or has the majority of a vote?

Strata Corporation Correspondence

Strata corporation correspondence includes correspondence between the strata managers and the council, and a strata council member to a non-council member on behalf of the strata corporation, and complaint sent to the strata corporation form owners or tenants.  Strata correspondence can cover a variety of topics, but questions you should be thinking about when reviewing strata corporation correspondence include:

• Is there a reference in strata correspondence to seek a legal opinion but there is nothing on file?

Have other questions about strata docs or  strata condominiums, townhomes, duplexes, or bareland stratas   in Victoria?  Just email us with any of your questions.

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