Legislative Updates to Depreciation Report Requirements

0:00 – July 2024 Depreciation Report Rule Changes

0:00 Ryan Grant: Hello everyone, it's Ryan Grant with BC Strata Tech. I'm here with Jeremy Bramwell from Strata Reserve Planning. He'll be giving us the update on the depreciation report requirement changes which will be effective July 1st 2024. Hello Jeremy.

0:16 Jeremy Bramwell: Hi Ryan, it's great to be here today.

0:19 Ryan Grant: Thanks for coming. Everyone's very excited to hear about the updates and changes and what exactly they need to do to be prepared for it. And I believe you have a presentation today that you're going to be sharing with everyone.

0:33 Jeremy Bramwell: Yes. The changes are long coming, 13 years, and it's just going to make financial planning much easier for stratas across BC, although some may not like the answers they get. It will make them stronger in the long term, lower special levies in the future, or at least make them less, so that some people are not forced to sell the unit or go into foreclosure.

1:16 Ryan Grant: Perfect. With that being said, I'll put your presentation on the screen here and I'll let you take it from there.

1:23 Jeremy Bramwell: Okay, thank you very much Ryan. Everybody, my name is Jeremy Bramwell, I'm president of Bramwell & Associates and of Strata Reserve Planning. Strata Reserve Planning is the largest depreciation report firm in the province, with three offices: one in the Okanagan, one on the island, and of course one here in the Lower Mainland. So today's presentation is going to be a shortened version of one that I gave some property managers recently.

1:55 So let's progress. The first thing is that there has been some changes in the structure, some changes in qualified people, timing requirements, and there's some impact for property managers and for strata councils. There are some changes in electrical planning reports but we're not going to get into them today. And those changes will also impact the issues relating to EV ready plans and depreciation reports. The first thing we're going to talk about is the structural changes.

2:35 Just one: executive summary. To be honest, I don't know too many people who don't have an executive summary. The second one, mandatory inclusion if relevant, talks about heating and cooling. So this has to do with people who are putting in heat pumps or other heating, cooling systems, in keeping in line with the CleanBC 2030 plan, which we will discuss a little bit later.

3:10 – Six Qualified Professions Under New Rules

3:10 Jeremy Bramwell: So the current legislation really says anyone the strata thinks is qualified is qualified. You could say that even a monkey could do it, and some reports that we've seen, you know, some people have the qualification of the said monkey. What we've seen is, we've seen Realtors do it, we've seen councils do it, we've seen road builders doing reports, we've seen everybody doing reports. And what the legislation is designed to do is get rid of this ambiguity.

3:47 So what it says now is a professional engineer, an architect, an accredited appraiser — the senior designation is the AACI — a certified reserve planner, who's the CRP, a person designated as a professional quantity surveyor, or an applied science technologist under the Professional Governance Act. Now, this list may seem to be quite large, and we'll get into that in a few minutes. Now, the mandatory deadline requirements have been changed from three to five years.

4:33 – New Five-Year Deadlines for 2026 and 2027

4:33 Jeremy Bramwell: So now you have to get it five years after the last report. If you don't have one which has got an effective date of January 1st 2021 or after, and you're in the Capital Regional District except for the Gulf Islands, or the Lower Mainland, you have till July 1st 2026. And everywhere else in BC you've got an extra year, to July 1st 2027. So this actually is a lot of the province, this is over 80 percent of the strata corporations have to get reports in the next two years.

5:15 – Capacity Projections and Provider Shortage

5:17 Jeremy Bramwell: So there's going to be a lot of stress on the system under these deadlines. This is what the government thinks, or is projecting, the timing and the workloads that are going to happen. We've been doing three to 400 reports a year for the last couple of years. So they think we're essentially going to go up to well over 5,000 reports next year and over 6,000 reports, and then drop down, and everybody's going to rush to the Okanagan to do theirs.

6:02 This is what the providers in the province actually think is going to happen: it'll be more curved out as they ramp up the capacity. This is why I personally believe the government is out to lunch on it. Given 50 reports per year annually, the number of full-time employees that the government believes is in blue, and it goes up from eight, you know, to essentially 133 in two years.

6:41 And then everybody's going to suddenly leave the business, and then two years later all the employers are going to train them and go again. My personal belief is that it's going to be more nuanced and the employment curve is going to be flattened out, because basically no one wants to hire and train a large number of staff, then they work for two years and then they fire them all, and then go through it in another two years.

7:20 So as we progress on what the capacity issue is, I'd like you to just keep this in mind. Both projections are based on the fact that nearly all of the six identified qualified people are located in the Lower Mainland and the Capital Region. So all the projections assume that the providers will serve their local area first, and after the 2026 deadline they'll rush to the Okanagan and elsewhere to fill up the gaps of reports required.

7:53 So we don't really have to worry about it here at Strata Reserve Planning, because we already have an office in the Okanagan, the north one, that serves the Okanagan, Shuswap, Cariboo, that particular area.

8:06 – Credit Unions and Mortgage Requirements

8:09 Jeremy Bramwell: Like I said, we also have an office on the island to serve the whole island, and then we have our Lower Mainland office. The big issue that most people don't think about is that credit unions are provincially regulated, and as such we're expecting them to require depreciation reports for mortgages. As 25 percent of all mortgages are reported with credit unions, one can estimate that 25 percent of developments will need a depreciation report for mortgages.

8:48 My estimate is that only 50 to 55 percent will meet the deadlines in the Lower Mainland and Capital regions, and less than 35 percent will elsewhere in BC. So this is going to be a real problem for everybody. Latecomers to the depreciation reports will create a real problem for the owners.

9:07 – Engineers Versus Non-Engineers by Building Type

9:15 Jeremy Bramwell: Just a reminder, these are the two groups, even though we have the six qualified people. Engineers, architects, they're the best qualified for high-rises. Non-engineers, essentially everybody else, are the best qualified for bare land, townhome, low-rise structures. The reason is the costing and the technology. So the truth is though that engineers will get involved with bare land, townhomes and low-rise buildings, because they're using them as loss leaders to find business.

9:54 Also there's a lot of EITs, engineers in training, or other types of technicians, who do the actual report and they just sign off. Now, the impact for property managers and for councils is that most depreciation reports are currently done by professional engineers. But given that most complexes being done right now are mid to high-rises, that's to be expected. Wood frame buildings, townhomes, bare land, industrial strata are not currently the majority, aren't being done.

10:40 So this is really to be expected. There are not enough engineers or engineers in training to meet the full-time employment requirements, so property managers will have to rely on others on the qualified persons list. Other choices are going to be required. It's not on this presentation, but you have to understand that on the upcoming electrical planning reports, engineers and the applied science technologists, which are two of the six categories, are also the only people who can do high-rises for the electrical planning reports.

11:21 So they're going to be busy with the heat pump installations and all these other reports, which is going to take away from their capacity to do depreciation reports. Again, just as a reminder, there are two types of depreciation reports. There's the engineered reports, which have invasive testing, in other words they put a hole in your roof or they put a hole in the wall and scope it out.

11:53 But everybody really does functional reports. Inspections are completed by visual review. Engineers do it as their loss leaders, as well as everybody else in the profession. You have to understand, with the designations, it may look like a lot, but there are some issues.

12:13 – Limits on Appraiser and CRP Designations

12:20 Jeremy Bramwell: I've never seen a QS or an architect do a report. I may be wrong, but I've never seen it. Also, most certified reserve planners are also members of the Appraisal Institute of Canada. There is a question, there's a section in CUSPAP, the Canadian Uniform Standards of Professional Appraisal Practice, which talks about what members can do if they're CRA residential appraisers. That says even if you have another designation, if the CRA is not allowed to do it, you cannot use another designation to override it.

12:58 So certified residential appraisers who are also CRPs are not going to be able to do reports, because of the Appraisal Institute of Canada rules, which means a lot of the CRPs are going to be taken out of the pipeline. So even though the deadline is a year away, and if you get a report in May you don't have to rush out and get someone on the list, we don't think that you'll be wanting to have a report done by someone who isn't designated three months later.

13:47 Property managers will have to use providers other than engineers, and we mean this for everybody. So you'll want to have providers who have an understanding, construction, legal and financial knowledge, as well as a good production speed. Here at Strata Reserve Planning we're quite lucky, we have a construction safety officer as our technical advisor. I have been doing commercial property valuation for nearly 30 years, and I used to be an accountant before I got into that, so I've got a pretty good legal and financial background.

14:33 We have software, we'll just get into it in a second.

14:38 – Ordering Reports Early for Budgeting

14:38 Jeremy Bramwell: We think the property managers and councils will have to start treating depreciation reports like insurance appraisals. You'll have to order them at the AGM in year four, so they're actually ready for the budgeting process in year five, because the legislation says you're supposed to do it every five years. So the effective date of a depreciation report is the first day of your fiscal year. If property managers or councils want to wait to order them until 2026, I believe they'll probably get the reports in 2027 or 2028, which may upset some of the owner financing, which would be a big issue.

15:23 Strata Reserve Planning, like I said, we've got offices in Vancouver, Victoria, Vernon, making us the largest non-engineering depreciation report firm. As BC Strata Tech goes out and focuses on software in the strata world, we have a proprietary web-based report generation software with over 800 components, called Reserve Plan, to scale up to meet our clients' needs while providing faster completion time in a consistent format. This is going to be key for everybody who orders depreciation reports: speed and consistency.

16:05 Many of our competitors still do it by Word and Excel, and it's not really going to work to meet the deadlines. The software is compliant with the Strata Property Act. It's designed to meet the needs of bare land, sections, building phases, shared amenities complexes, as well as all the standards that are out there. So at this time, we usually have some questions.

16:35 Ryan Grant: Yeah, I do have some questions here, Jeremy, that I had prepared. I wanted to know, how would you take care of a section building, in particular, anything unique?

16:43 – Q&A: Section Buildings and Separate CRFs

16:49 Jeremy Bramwell: There's a lot of discussion about section buildings. So in a section building, we kind of take the philosophy of one depreciation report for each CRF, contingency reserve fund. So in the section building it's usually a residential section over commercial section. So, like a four-storey building, what you'll see is three levels of apartments with stores on the main level, and then underground parking.

17:22 So part of the building only the residential guys take care of, that would be its hallways and its elevator, and then there would be the portion that the commercial guys are responsible for, and then there'd be the common areas that both use, like the underground parking, the exterior of the building, the roof, that sort of thing. So within these types of buildings there's three operating budgets, there's three contingency reserve funds, so we actually provide three reports, one for each section.

18:01 Ryan Grant: Awesome, makes it much easier for the councils to understand what aspects they're responsible for.

18:09 Jeremy Bramwell: Yeah, and it also aligns with the privacy legislation out there in British Columbia, because we're not really allowed to talk about someone's financial position and expose that if they're not in that section.

18:31 Ryan Grant: Yeah, that makes sense. So there is another question about… I saw, very popular online on different strata forums, that people were talking about how the province made the announcement, and it was a little confusing about the six different profession types that you can select from.

18:52 – Q&A: Choosing One of Six Professions

18:54 Ryan Grant: And some people said, oh, do I have to hire one, a report from each of those professions? If you can maybe clarify that, so people aren't confused on what it means, that they can select a report from one of the six professions.

19:10 Jeremy Bramwell: Yeah, no. Typically you would only have one firm, with one of those designations, looking after your report. The only kind of exception would be if you had a structural issue, or you had mould and you're, like, a wood frame building. Yes, right, because depreciation report consultants who are not engineers are not allowed to comment on structural issues.

19:56 And so what we, when we've run into this issue in the past, we've kind of stopped the report where we are, we've recommended that they go get the engineer, the engineer comes back and goes, okay, yeah, it's going to be whatever, we'll just take a number, it's going to be a quarter of a million dollars to fix it and do the restoration. And then once we get that number we take it and we plug it into our report as a one-time cost.

20:24 Ryan Grant: Okay, yeah, that makes sense then.

20:28 Jeremy Bramwell: Yeah, we're kind of proud of that team approach.

20:31 Ryan Grant: Yes, perfect. I didn't have any other questions here.

20:37 – Advice on Provider Experience and Book Update

20:37 Ryan Grant: Is there anything else you think maybe of other importance, or that's about it?

20:42 Jeremy Bramwell: Well, what I'd like to tell your viewers is to pay really attention to the experience level of the people that they're thinking of hiring. We've been at this now for 13 years since the legislation went into the Act, but we are expecting to have a lot of people suddenly show up as depreciation report experts. And I can tell you from personal experience, it's a very interesting business, but it does take a bit of time to learn what you're doing and understand the nuances in the legislation and the nuances in different people's property.

21:37 So if you're out there and the person doesn't have at least five years experience, maybe you should kind of continue on to another firm that has that experience.

21:59 Ryan Grant: Yeah, perfect, that's great information to know. The government did release this recently so everyone's been looking for updates and guidance on it, so this was really great to have you on right before we have the BC Strata Tech event on May 14th and 15th with the other presenters.

22:20 Jeremy Bramwell: Yeah, I am actually looking forward to listening to the speakers. Technology is a growing part of the strata world.

22:31 Ryan Grant: Yes.

22:31 Jeremy Bramwell: And well, we all don't have to know everything about everything. I think, especially for self-administered strata corporations, they need to have a very basic understanding of what's out there and how some of the technology can help them.

22:55 Ryan Grant: Exactly, and when to go in and find the guidance, right, when they need to do that. That's the most important thing, right?

23:02 Jeremy Bramwell: Yeah. In the many reports that we've done, and we've done hundreds and hundreds, the most problems that we've come up into, to be very honest, has been in the self-administered world, when they don't know who to ask. So whether it's videos, or like a book on the subject, like there's a book on depreciation reports, those sorts of things can really help the stratas out there get a good grasp of what's going on.

23:50 Ryan Grant: And you did have a book come out last year on the topic, so we'll be able to definitely…

23:54 Jeremy Bramwell: Yes, we do have a book, Depreciation Reports in British Columbia. We've put it out of print right now because we are just updating it with the new rules. And because we're also putting in a little bit about electrical planning reports, because we've got a consultant on staff. But the book should be available for ordering on our website by mid-May, and we're looking to have it at some bookstores for the end of May.

24:37 Ryan Grant: Great, yeah, when that's done let me know and I'll definitely let the viewers know of how to get their hands on it, because that would be perfect timing for them. Well then, with that being said, thank you so much again for coming Jeremy, that was really great. We'll get this video out to our viewers, and thanks again for coming on the show.

25:01 Jeremy Bramwell: Thank you very much.

25:01 Ryan Grant: All right, take care Jeremy.

25:03 Jeremy Bramwell: Take care, bye bye.