Buying Into a Strata

First, what IS a strata?

Called an "HOA" in some other jurisdictions, a strata is a form of ownership where a building, a group of buildings, or a large piece of land has been "stratified" into multiple, legally separate units (lots). The individual lots are usually apartment units or townhomes, but they can also be stores, warehouses, or land parcels.

Each lot is owned outright by its owner, just like the "freehold" ownership that you might already understand in the case of a detached home on its own piece of land. But with a condo apartment or townhome, you don't own the land under your unit – you own a SHARE of the entire lot that your strata buildings are upon.

The shared land parcel is referred to as COMMON property because it is owned in common by all the strata lot owners. In addition to the land, common property includes everything else that isn't specific to any unit – for example the roofs, the landscaping, the parking lots, outdoor lighting, the insides of the walls, and usually even the exterior doors and windows.

The strata lot owners come together and figure out how to manage themselves as a group – this usually takes the form of an annual general meeting, and the election of a small council of people who oversee the administrative affairs of the strata through the year until the next AGM. The owners vote on various decisions including creating and changing bylaws, how much money to collect from everyone monthly, and how to spend their money.

Many people have a sense that their monthly payments are a waste, as if they are going to some strata landlord. But your money is actually going into a pool to cover shared costs like these (note, this may vary by strata:

  • Insurance and property taxes for the land and common property
  • Shared systems like plumbing and electrical, elevators, boilers, etc.
  • Outdoor infrastructure: parking areas, drainage and sewer lines, landscaping, and snow removal.
  • The exterior of the buildings, including roofs, windows, siding, balconies and exterior doors. Your monthly payments don’t seem so bad when you consider that they cover these!
  • City services like water, sewer and garbage pickup
  • Recreational amenities like gyms and pools and meeting rooms

The other MAJOR cost for the strata is its contingency reserve fund (CRF). This is a savings account that is funded and held in reserve for capital projects like roof replacement. A well-run strata will always have money in the CRF. If a big expense comes up and the reserve fund doesn’t have enough cash in it, then the strata owners are assessed a "special levy" or "special assessment" which is an extra payment in addition to the monthly fee – sometimes it can be thousands or even tens of thousands of dollars. There are stratas in Nanaimo whose owners have had to find up to $90,000 EACH to pay for big projects. Of course, many of those owners have to sell their units for rock-bottom prices if they can't come up with that kind of money.

Did You Know?

Strata is synonymous in BC with "condominium". A three-story townhouse is a condo. An apartment in a 100-unit tower is a condo. But it's common for people to refer to apartment units as "condos" and to refer to multi-level condos as townhouses.

Strata Management Companies

Most stratas with more than a dozen units will retain the services of a strata management company who will assign a manager to work with the strata and guide them in their affairs. This manager is not part of the strata (they don't own a unit) but they are educated about BC's Strata Properties Act and they are regulated similarly to real estate agents.

Bylaws

You might be totally comfortable with the idea of owning a unit that is pressed up against someone else's unit, and sharing in the responsibility for the common assets. But many people get a bit squirrelly when it comes to following rules. Stratas involve a lot of people sharing space and costs, so there must be some governance of what the owners are permitted to do on their lots and especially on the common property. BC has a standard set of strata bylaws which most stratas employ as a starting point, and they are free to alter them as they see fit (subject to human rights codes, etc.). It is common in Nanaimo for example, for stratas to have bylaws like these:

  • Only 1 dog allowed, up to 22 lbs
  • No BBQs allowed
  • No cultivation of marijuana (BC allows 4 plants per home, but a strata can legally agree to forbid this in their bylaws)
  • If you're installing new flooring, it must be of type X and you need approval from the strata first (but the strata may not unreasonably deny, etc.)

Strata Insurance

Strata insurance premiums and deductibles are increasing. This is due to factors like ageing buildings, high instances of claims (for example, in a development with leak-prone water systems), the increasing costs of labour for repairs and maintenance, and stratas ignoring their maintenance schedules.

When you're considering buying into a strata, it's a good idea to check their insurance details and discuss with an insurance professional. This can even be a condition in your offer, along with checking the other strata documentation (financials, bylaws, meetings, etc.).

In addition to double checking that the strata is insured for a reasonable replacement cost, you also want to review the insurance deductible amounts. If a strata's insurance deductible for water leaks is $50,000 and a leak from your unit causes $40,000 to the units below, then the damages aren't covered by insurance and the strata will require you to pay the $40,000 deductible – so you need to insure yourself (insurance deductible insurance!) to cover such costs.

Depreciation Reports

Like a home inspection on steroids, a "depreciation report" evaluates the condition of the strata building(s). Importantly, it also forecasts the maintenance and replacement costs that the strata will face in the coming years, AND it provides schedules of funding to help the strata plan its financing of upcoming projects.

The Strata Properties Act requires all stratas with 5 or more units to commission a depreciation report every three years, unless the members agree to waive this requirement (every three years) with a ¾ vote.

The depreciation report can be quite complicated to read, especially since it describes all kinds of construction materials and methods using jargon. It also gets into some "money talk" that is murky for some people, especially in the section where it offers different funding models that the strata might employ (e.g., increase monthly fees now and expect a small special levy in a few years when the exterior stairs are expected to fail, vs. keep fees as they are and expect a larger levy for fixing those stairs).

Things to check when reviewing the Depreciation Report:

Was it produced in a relevant timeframe? The Act suggests that the depreciation reports have 3-yr lifespans – that's why the strata has to do one (or specifically vote not to) every 3 years.

Was it produced by someone who is qualified? You want to make sure that the report was made by a reputable company with experience in producing these, and there should be an engineering or general construction expertise, for example.

Is the company producing the report insured? This will be indicated in the report. If they aren't insured, and they missed something big, it will be hard to sue them!

Have they considered all of the buildings' inventory, and does that inventory match the bylaws? If the report doesn't mention the state of the balconies, then this might mean that the inspector was drunk when s/he created this all-important document. Or, it might mean that the balconies are not common property, and are the owner's own responsibility (this is rare). The depreciation report is only responsible for dealing with common property.

Are there are at least three financial forecasts? The report is required to provide three models for how the strata might fundraise for the projects expected. These are usually presented as (first) a model that is NOT recommended, where the strata keeps payments nice and cheap, but there will be hell to pay later, and then two other models in which the strata acts early to get some money into the reserve, usually through increased monthly payments, so that the projects won't require big special assessments later. The strata has no obligation to follow any of these models.

Are there red flags in the report, for example very large expenses that will require a lot of extra funding?

Bare Land Stratas

The same principle of "you own THIS lot and also a share of all THAT" applies in a bare land strata, too. In this scenario, a large piece of land has been divided into separate lots, and each owner has freehold ownership of their own lot (just like any subdivision, so far) BUT it is different because there is also common property; similar to how a condo building has shared infrastructure in the walls and roof, a bare land strata involves shared ownership of things like roads, street lights, sewer lines, water systems, etc.

Strata ownership can be complicated and fraught with risk, but it’s a very manageable risk thanks to all the regulations that require fairness and transparency during the marketing and purchasing of the lots. Make sure you work with a real estate agent – we have all kinds of training and experience (so much experience, ugh) to make sure you aren't acting blind when you consider your next strata purchase.

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