Enhancing Reserve Fund Requirements for Strata Corporations

The recent amendments to the Strata Property Act in British Columbia focus on increasing the minimum contributions that developers and strata corporations must make to contingency reserve funds (CRF), from 5% to 10% of annual operating expenses, effective November 1, 2023. This change, advocated by housing experts and industry representatives, aims to ensure sufficient funding for routine maintenance and emergency expenses, thereby reducing the risk of unexpected fee hikes and insurance cost increases for homeowners. The new regulations also include changes to the Form B Information Certificate, enhancing transparency for prospective buyers and strata owners regarding insurance coverage, and are part of a broader effort to stabilize the strata insurance market and protect homeowners from unforeseen financial burdens.

Introduction to New Strata Regulations

In an effort to safeguard homeowners in select strata properties that have been overlooking necessary maintenance, leading to potential spikes in insurance costs, there have been pivotal amendments to the financial contributions required for contingency reserve funds by developers and strata corporations.

Statement from the Minister of Housing

Ravi Kahlon, the Minister of Housing, emphasized the importance of these changes, stating, "Residents of strata properties should feel confident that their strata corporation is financially prepared for regular maintenance, thereby controlling strata insurance expenses. Although most strata corporations are responsibly managing their funds, there are a few that are underfunding, exposing homeowners to sudden cost increases and higher insurance rates. These new regulations are designed to ensure even these few are adequately prepared."

2020 Legislative Changes and Their Impact

The year 2020 marked a significant turn in the Strata Property Act. The Province took steps to assist strata corporations in better managing insurance costs, which included the implementation of these new regulatory measures.

New CRF Contribution Standards

Strata corporations in British Columbia are mandated to maintain a contingency reserve fund (CRF) for less frequent communal expenses, like maintenance tasks and emergency situations. The recent regulation changes dictate an increase in the minimum contribution by developers and strata corporations to their CRF - escalating from 5% to a minimum of 10% of their annual operational expenses, effective from November 1, 2023.

Consultation and Industry Feedback

These revised minimums were established following consultations with strata managers and homeowner representatives. Industry experts note that the vast majority of the approximately 34,000 strata corporations in the province already surpass these minimum thresholds and hence will not be affected by the new changes.

Report by BC Financial Services Authority

A report by the BC Financial Services Authority in December 2020 highlighted the need for improved maintenance and risk management practices to alleviate the growing pressure on insurance premiums and deductibles.

Developer Responsibilities and Transparency

Developers are now obligated to include a CRF contribution in the interim budget for new buildings, which should be at least 10% of operational expenses. This measure is aimed at preventing the promotion of unrealistically low strata fees and mitigating unexpected fee increases in the initial years of a building’s existence.

Impact on Strata Corporations with Lower CRF Contributions

For the minority of strata corporations that currently contribute below the new required levels, this change will decrease the likelihood of insurance claims and unexpected major levies, and assist in stabilizing premium rates.

Updates to Form B Information Certificate

Changes will also be made to the Form B Information Certificate from April 1, 2023. These alterations will include a summary of the strata corporation’s insurance coverage, providing clarity to potential buyers and owners about the adequacy of the property’s insurance and the necessary individual owner insurance requirements.

Industry Opinions on the Changes

• Tony Gioventu, Condominium Home Owners Association of B.C.: Highlighted the significance of sufficient contingency fund contributions and accurate depreciation reports in safeguarding a strata corporation’s assets and diminishing the risk of unexpected levies.
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• Chuck Byrne, Insurance Brokers Association of BC: Emphasized the collective responsibility in maintaining the health of the strata insurance market, with a focus on adequate contingency funding for maintenance.
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• Wendy Wall, Vancouver Island Strata Owners’ Association: Stressed the importance of proper funding for strata corporations to fulfill their legal maintenance duties, noting that the new regulation is a positive step even for smaller strata properties.

Further Information

For more details on the 2020 amendments to the Strata Property Act and Financial Institutions Act, please visit: BC Government News Release.