Strata Tip of the Week - What’s “A Lot” When it Comes to Future Special Levies?

When buying any type of real estate, considering future costs beyond the purchase price is essential. For strata-titled properties, special levies can be one of the most significant additional expenses. But what is considered "a lot" when it comes to future special levies?

1. What Is Considered “A Lot”?

If you've read our previous email titled “Most Stratas Are Not Saving Enough for the Future (to avoid special levies)”, you’ll know that many BC strata corporations are not setting aside enough funds to cover all future capital expenses. As a result, most buyers should anticipate some special levies in the future.

Whether $1,000, $25,000, or even $200,000 in potential special levies is "a lot" depends on individual circumstances. For buyers, knowing the amount of special levies they may face is essential in deciding if a property fits their financial plan and comfort level.

2. Special Levies Don’t Necessarily Indicate a Bad Investment

The need for special levies doesn’t necessarily mean a strata corporation is poorly managed or that the property is a poor choice.

In British Columbia, strata corporations are required to contribute at least 10% of their annual operating budget to the contingency reserve fund (CRF). However, just because a strata is meeting this legal minimum doesn’t guarantee that it will have enough in its CRF to pay for all its future capital expenses.

At Condo Clear, we provide buyers with an estimate of the anticipated special levies they are likely to face in the future, empowering them to make more informed decisions.

3. How to Estimate Potential Special Levies

While predicting future special levies isn’t an exact science, it can still provide valuable insights for buyers. To calculate the anticipated special levies, one must look at:

• CRF Balance and Contributions: Start by assessing the current CRF balance and annual contributions.

• Depreciation Report Estimates: Compare the CRF against anticipated expenses outlined in the strata’s depreciation report. More recent reports tend to offer more reliable estimates.

• Completed Projects: Factor in any major projects completed since the latest depreciation report, as these may reduce future special levy needs.

4. Key Considerations for Buyers Facing Special Levies

a) Factor Special Levies into the Purchase Price - Expected special levies should be factored into the total cost of buying a property, potentially allowing room for negotiation on the purchase price.

b) Prepare Financially - Understanding and planning for future special levies helps avoid unexpected financial strain.

c) Consider Construction Disruptions - Major repairs can bring prolonged construction noise and inconvenience. Buyers should consider their tolerance for potential disruptions.

For strata buyers, understanding the amount of special levies they’re likely to face in the future is an essential step. With these insights, buyers can make confident, informed decisions about their strata-titled investment and ensure they are putting enough funds aside to cover special levies that may arise.

That’s it for this week. If you have any suggestions for other topics you’d like us to cover, please let us know at info@condoclear.ca.