Buying into a strata corporation can be a scary thing for many owners because they have heard horror stories about stratas: the stratas enforceable large special levies against the owners, restrictions on what owners can do with their own strata lot, etc. The question of whether you should buy into a strata more often depends on your budget and what you can afford. If your budget points you towards strata living, there are at least 5 things that you should review carefully before you decide to buy a strata lot in that strata.
1. Strata Bylaws
A strata corporation can have rules that can severely limit what you can do even inside your strata lot. Most rules buyers are concerned about are rental restrictions, pet restrictions and/or age restrictions. Even further, bylaws can restrict alterations that you can make inside your strata lot.
You should carefully review the bylaws to make sure that you can use your strata lot that way you intend to.
2. Form B Information Certificate
The Form B Information Certificate contains very important information that you won’t find on the strata plan, the bylaws or council minutes.
It will tell you what your monthly strata fees are, whether there are any special levy payments owing on your strata lot, what parking stalls and/or storage lockers are assigned to your strata lot, and whether the strata is involved in litigation.
Some of this information will already be disclosed to you by the realtor, but it is always recommended to confirm that the information provided is correct by carefully reviewing the Information Certificate.
3. Strata Minutes
You should be provided with the last two years of Annual and Special General Meeting Minutes and Council Meeting Minutes for your review. While this may seem like a lot of pages to review, it is very important that you review each set of minutes to get an idea of what the strata’s issues are (if any). You will be interested in noting whether there are any outstanding big ticket repair items: doors, windows, roofs, etc. If there are, you may be looking at a large special levy even if no special levy has been imposed yet and disclosed on the Information Certificate.
You will also get an idea about how the strata corporation is run from reviewing the minutes and if they seem to have governance issues.
4. Depreciation Report
A Depreciation Report is a management tool for strata corporations and can give you an idea of what repair and maintenance obligations are coming due for the strata corporation, what the potential cost of those items will be, and if the strata has enough funds to cover those obligations.
The Depreciation Report is intended to be a tool that helps strata corporations plan their repair and replacement of common property components. If the strata you are looking at doesn’t have a Depreciation Report, this isn’t necessarily a bad sign: not all strata corporations have these reports as they can choose not to obtain one.
However, lenders like stratas that have Depreciation Reports because it can help them assess the risk of mortgaging the strata lot you are looking to purchase.
If there is a Depreciation Report, this can be another item to look at (as with the minutes) to see if you are buying into a strata with a potentially large special levy looming in the near future.
5. Financial Statements
These statements will show you how much is in the Contingency Reserve Fund and/or how much is owing to the strata corporation in strata fee, special levy or fine arrears.
The smaller the Contingency Reserve Fund, the less the strata has for big ticket items and/or emergency repairs. Meaning, if you are buying into an older strata that hasn’t replaced its roof, doors, windows, etc., those items may need replacement in the near future and you will have to pay out of pocket for those repairs rather than using the Contingency Reserve Fund.
If a strata has significant arrears owing to it, it may be experiencing budget concerns. This is not to say that you shouldn’t buy into that strata, but it may make you ask why they have such high arrears. Are owners not paying their share of the fees? This is going to be more important than if there is a large amount of fines outstanding.
Strata fee arrears can put a strain on the ability of the strata to meet its ongoing expenses, while large outstanding fines points to a potential bylaw enforcement issue.
All of these documents should be provided to you well in advance of you subject removal date so that you have sufficient time to review those documents and thoughtfully consider whether that strata is right for you. You can also take those documents to be reviewed by a strata lawyer or your conveyancing lawyer for their take on the potential risks disclosed in those documents.
The BC Housing Website also has tips for first time strata home buyers.