Many buyers make the mistake of not reviewing strata documents properly, or even worse, never read them at all until… they wish they really did.
Strata documents can often be very overwhelming as they can come in packages of up to 500 pages or more. Not knowing what you are looking for, or something you will miss out on that will be of great importance to you, we have compiled a list below to help you understand why reading certain strata documents is so important.
Clients often ask, "What do I need to know about this complex, and is it really necessary that I read through all these document? The following 11 important strata documents are what every strata buyer should be carefully reviewing in detail before removing subjects on a strata unit.
What is a 'Form B' and why is this so important?
A 'Form B' is an extremely important strata document that should be reviewed by anyone considering buying a strata lot. The form B discloses information about the strata corporation and its financial affairs such as the amount of the strata fees, any outstanding or approved special levies/assessments and stipulates the amount in the contingency reserve fund. It will also note any bylaws that have been recently approved.
For an investor, it will tell them whether or not rentals are allowed in the building and/or details on any restrictions such as the amount of strata lots in the development that may be rented.
The Form B also describes the amount and details about any parking stalls and storage lockers that are allocated to the strata lot, and their numbers and whether they are common property, limited common property, part of a strata lot, or a separate strata lot.
The strata manager prepares this form as he has the necessary information to complete it. To get approved for a mortgage, most banks will most likely require a copy of this form and it should be current; ideally 14 days or less.
More on Form B's
BYLAWS & RULES
How will bylaws & rules affect me?
Bylaws and rules may be of high importance to you as they outline what is restricted in the building, and what all owners are required to comply with. A very popular bylaw is the pet bylaw. If you are deciding on having pets, you will need to review the pet restrictions. Many buildings allow only one pet, and others permit two. Some even restrict by weight or height of a dog.
If you plan on investing or renting out the unit in the future, you need to review the bylaws to see if they restrict the number or percentage of units that may be rented out. Other bylaws may restrict smoking, quiet hours after 11pm and some even specify the type of window coverings. Rules may not permit any or include only certain types of barbeques on the balconies.
If you plan on renovating or alter your unit in any way, you may be required to ask for permission from the strata council.
Different strata’s have different bylaws. You need to verify what is important to you, what you are planning on doing with your unit, and understand the restrictions in the common areas. This will ultimately determine whether you will continue to pursue this purchase or not.
For more detailed information regarding Bylaws and Rules visit: Bylaws & Rules
More info on 'Pet Bylaws'
More info on 'Rental Restrictions'
What is a depreciation report?
Depreciation reports help determine what sort of costs would be coming up in the future. It helps the strata estimate when components will wear out and how much it will cost to replace them. It helps minimize the chance of special levies due to unexpected maintenance and repairs. The reports create projections over the next 30 years, while estimating costs, and how to finance these costs over that time period.
Most lenders will require a depreciation report. If for whatever reason the strata has decided against obtaining a depreciation report, your options in terms of lenders will be greatly minimized. More on depreciation reports
Isn’t an engineering report similar to a depreciation report?
Engineering reports and depreciation reports reference two entirely different documents. Strata corporations obtain engineering reports to identify structural, envelope or other building components deficiencies requiring repair. An engineering report is specific to the problem areas and usually provides options for repair whereas depreciation reports create projections over the next 30 years, while estimating costs, and how to finance these costs over that time period.
Secondly, an engineering report can also be used to assess the building for deficiencies to discover and determine which issues are covered under warranty. All strata complexes have a 2-5-10 warranty in place which covers mechanical, and structural components. Near the end of the 2,5 or 10 year mark, the strata council will likely have an engineering report done to ensure what needs maintenance and whether it is covered under warranty or if it’s been completed.
LAST 2 YEARS OF STRATA MINUTES
Really? Do I need to review all the strata minutes?
The strata minutes will outline all of the strata meetings and will give you a rough idea of ongoing issues and/or maintenance the strata decided were necessary, have been carried out, or were completed. Minutes may also include for example break-ins, noise complaints, history of or upcoming special levies, and the history of the building maintenance.
Reviewing these minutes will also give you an idea on how the council deals and addresses specific issues and concerns and how pro-active they are.
The building/complex and its finances are managed by council members that are annually elected or volunteered residents of the complex along with the property manager.
You should obtain a copy of at least two years’ worth of minutes. For an older building we suggest going back 3-4 years. It is good to know the history of an older building and the work that was done.
So, yes, reviewing the minutes is important to every strata purchaser and they are advised to read and understand them.
More about strata council meetings
ANNUAL GENERAL MEETING MINUTES (AGM)
Why should I read it?
Once per year an AGM (Annual General Meeting) must be held. This meeting can be waived if all eligible voters waive the requirement to hold an AGM).
The AGM sets out the budget for the upcoming year including the strata fees and whether they cover the new budget, discusses any proposed changes to the bylaws/rules, finances, insurance coverages. Any special levies that are considered are also discussed at the AGM.
All new purchasers need to review this document as it shows how the complex has preformed in the past and what to expect in the new year.
More on AGM's
SPECIAL GENERAL MEETING MINUTES IF ANY
Is this similar to an AGM?
Special General Meetings also known as SGM’s, can be held in addition to the AGM. If something out of the ordinary popped up, or any important issues need to be discussed and resolved, the strata council can call a special general meeting.
This is also an important document to review as SGM’s could discuss a special levy such a water leak, plumbing issues, and/or create, amend or remove bylaws or any other issue that needs attention fairly quickly. You will want to know what is happening with the complex, how it will be resolved, and how it may affect you.
More on SGM's
STRATA CORPORATION INSURANCE POLICY
How does this affect me?
Across the country, condo insurance has made headlines. More frequent or larger weather-related events such as floods, wildfires and hurricanes have created changes to the strata insurance marketplace which have premiums skyrocketing, and coverage needs rapidly changing.
Understanding the coverages you need, the coverages you have, and how condo and strata insurance policies work is crucial to ensuring you get the best policy for you. Every strata corporation is required to obtain a ‘strata insurance policy’ for the building on the strata plan, common areas, and original fixtures.
A condo unit ‘owner insurance policy’ is different from a ‘strata insurance policy’: the strata insurance policy covers the building and communally owned areas; the condo policy covers the unit owner specifically. Many people misunderstand the strata being insured for the contents of their unit. However, condo owners are not required to have individual insurance for their units, but it is highly advised.
The strata insurance landscape has changed dramatically. The most obvious change is to the rates, which are sometimes doubling or tripling. What is crucial to know, is that the deductibles are increasing alongside the rates. For example, deductibles for water damage are increasing on strata insurance policies to as high as half a million dollars. If damage to the building or communal areas originates from your unit, you could be assessed the entire strata insurance policy deductible. Therefore it is vital to ensure your condo insurance policy includes enough 'Deductible Assessments' coverage.
It is important that you obtain the most recent copy of the insurance note so that you can pass this along to your insurance provider. The insurance note is typically attached to the annual general meeting minutes. And remember that every insurance company handles condo coverages differently, so talk to your broker to make sure you have the best policy for you.
View more info on Strata Insurance
View more info on Insurance for strata owners
BUDGET AND FINANCIALS
Should I review the budget and financials?
A strata budget estimates the anticipated expenditure of the complex. It also displays the current amount of funds in the CRF (Contingency Reserve Fund). A buyer should review the budget and financials. Some things to look for are that the CRF be equal to at least 25% of the operating fund.
Regulation 6.1 requires the CRF be equal to at least 25 per cent of the operating fund. If the CRF is below this amount at the time of the AGM, an amount equal to 10 per cent of the operating fund must be contributed annually until the CRF is 25 per cent of the operating find.
The financial statement is to report on the strata corporation's actual income and expenses for the year that is just ending. A purchaser/owner should have a basic understand what the income and expenses of the complex are.
More on budget and financials
How important is this?
To determine the proportionate contribution for each strata lot to the expenses of the Strata Corporation, a Unit entitlement, which is a number assigned to each strata lot, determines the share of common property and assets belonging to each strata lot. This is used to calculate strata fees and levies, voting power, and your share in the common property.
For example, if there are ten strata lots in a development, and they are all identical in size, then each owner would have 10% share in the common property, common facilities, and other assets of the Strata Corporation, and therefore each would pay 10% of the expenses for these per year. Typically, larger units will have a higher number and therefore expect to pay a higher percentage. However, this is not always the case. There are haphazard ways of determining the entitlement on smaller schemes which may put you at a disadvantage.
Unit entitlement is a very important number. If it is incorrectly apportioned, you could be paying higher-than-necessary strata fees, and/or your voting power and possible share proceeds could be significantly lower than what you would actually be entitled to.
More on unit entitlement
Why should I read it?
A strata plan needs to be reviewed as it is a legal document deposited by the builder of the complex, at a land titles office which identifies land that is subdivided into 2 or more strata lots. It outlines the location and dimensions of each unit, common areas, and which parking or storage locker is allocated to a specific unit.
You need to know exactly what your are purchasing and double check with the strata manager for any discrepancies you may find on the MLS Listing that does not match the strata plan including square footage of the unit etc.
View a sample of a strata plan
PARKING STALLS & STORAGE LOCKERS
Don't I automatically get the stall/locker the sellers have?
Depending on how the stalls are allocated, you may not get the same stalls/lockers the sellers have.
Parking stalls and storage lockers are allocated in many different ways.
- Part of a strata lot (Completely separate from the unit. Can be sold separately from the strata unit.)
- Separate strata lot (Part of the same lot as the strata unit and share the same strata lot number and cannot be separated.)
- Limited common property (Owned by all owners in the complex. Exclusive use given to owner)
- Common property as: (Owned by all owners. These stalls can be allocated in 3 different ways...
a) Granted as exclusive use
b) Assignment of rights under a lease or license
c) Common use of parking spaces
It is important to understand what you are purchasing. You may be expecting the stall near the building entrance while in reality you will be getting the one next to the dumpster. Because the seller currently has rights to 2 parking stalls, does not necessarily mean you will. If this is important to you, you will need to review and understand the various ways the stalls/lockers are allocated.