Will I Ever Need to Pay a Special Levy?

If you’re a condo owner in Vancouver you will 100% have to pay some sort of special levy if you own for an extended period of time. This can often come as a shock to first time home buyers that are not familiar with how a strata corporation is funded. 

First time buyers, on average, usually tap into entry-level condos. Typically this means the buildings are a bit older and may need some work. The draw is a sticker price that is “affordable" which is a way for them to get into the market without breaking the bank. However, the price tag is never the whole picture.

The building may need new plumbing, roof, wiring, membranes, balconies…all of which need to be funded by money coming from the owners themselves. If there isn’t enough money in the CRF (contingency reserve fund) for major projects then the money will be have to be raised through a special levy assessed to each strata lot owner on a unit entitlement basis. 

Special levies can run from a few hundred bucks, to thousands, to tens of thousands of dollars or more in the absolute worst case scenario. It depends on the size and scope of the project at hand, how many units are in the building, the unit entitlement of that particular unit and a multitude of other factors. 

“But wait…that’s all quite scary, how can I accurately predict what kind of special levies are coming up?” Luckily my friend, there is hope in this little document (usually 100+ pages) called the “Depreciation Report.”

There are varying degrees of deprecation reports but a good one will be prepared by a reputable company with competent engineers. The report should provide extreme detail outlining all major building systems and their life expectancy, cost projections for the next 30 years and CRF funding models to guide the strata corporation. 

To find out the cost of potential levies turn to the page of the depreciation report that projects the total repair costs by year. Take that figure for any one year and multiply it by the unit entitlement (U/E) for the condo itself. That calculation will result in a rough number of what a potential special levy could be for that particular unit in any one year. It’s important to note these numbers are only an educated guess based on the experience of the engineer who has written the report. Actual replacement and construction costs will vary and there is no way to give a rock-solid number until a project is tendered.

If you’re looking at a building that does not have a depreciation report it is a huge red flag. It is “buyer beware” as you really don’t know what you’re getting yourself into at that point. There is no transparency and no way to make an educated guess of what could be coming down the pipeline for repairs. 

Let’s go back to the importance of the CRF. Think of a CRF as the savings account for a strata building. It’s there for emergencies, large projects and as a cushion for any unexpected expenses the strata may face over time. In BC, our strata corporations are notoriously underfunded and lack the money to cover major projects as they arise. If you compare HOA fees in other parts of the world VS strata fees in BC (particularly Vancouver) you will notice that our fees are often hundreds of dollars less per month. The BC Strata Property Act only requires 25% of the annual operating fund to be contributed to the CRF. Most condos in the US and other parts of the world it is normal to contribute almost double that.

Another bonus of a healthy CRF is the strata can borrow money from the CRF and repay it over time. We usually see this happen for insurance premium increases or other unexpected operating cost changes. Having a large fund to draw from offers the strata more financial flexibility and lowers the burden on individual owners. A low CRF is a risk to any strata and increases the likelihood and impact of a special levies.

Will you ever need to pay a special levy? The answer is yes, to varying degrees over the period of time you own your strata unit. Your REALTOR® should advise you, based on the depreciation report and financials of the building, how much a potential special levy or series of special levies over the years you may face for a unit that you are thinking of purchasing. It is imperative for buyers and REALTORS® to read from front to back the whole strata document package. There is no way to determine the amount of special levies or gauge the risk of a building without diving into the documents and painting a clear picture of what is really happening behind the price tag. 

Would you like to work with a REALTOR® that will coach and guide you through the process of buying a condo with skill, patience and ease? Please reach out to me as I’d love to assist you in your home buying journey.

Nevada Cope PREC*

604-897-6971

nevadacope@gmail.com