wtdrm

What the Depreciation Report Misses

REPRINT FROM THE INTEGRAL NEWSLETTER

All buildings are built with a purpose in mind. The purpose of a building will define the use and occupancy of that building. The function of that occupancy design can range between 20 – 65 years depending on the use that building receives, and the type of occupancy it is. Also, the type and quality of construction will play a role in its longevity.

 

The Depreciation Report will deal sufficiently with the curable physical deterioration of individual short lived components such as paint, floor and roof covers, hot-water heaters, etc., that require periodic replacement, or renewal, or modification continuously over the normal life span of the component, but it does not deal with incurable physical deterioration of the building in whole.

 

The incurable physical deterioration is the wearing out of the components, and systems, such as floor and roof systems, mechanical supply systems, and foundations, that will generally have a life expectancy of the occupancy design or more.

 

The average strata complex in the province has an occupancy design life expectancy of 50 years at which time; the functional design along with the features found within the structure can be rendered obsolete, and out dated. At these anniversaries, stratas can be remodeled, upgraded, and the incurable physical components addressed. Most of these incurable physical components have a life expectancy of 50 years up to 200 years, therefore the revitalization of the occupancy design will have 3 anniversaries before the building is rendered obsolete and needs to be replaced in the majority of cases.

 

A Depreciation Report is for the next 30 years, and if there is no anniversary falling within that period, then the flow of reserve funding is uninterrupted and relatively an even flow with minor increases in fees provided the reserve funds are sufficient. It is when anniversaries as mentioned in the preceding falls within the Depreciation Report timeline that there will be spikes in projected costs and insufficient reserve funding shown.  Even Special Assessments will be necessary during these periods.

 

For example, a Class D (wood frame), Very Good Quality, strata that was built in 1976, would typically have 3 anniversaries before being rendered obsolete before being torn down and replaced. Those dates would be 2026, 2076, and 2,126 respectively.  A Depreciation Report written today, for the period of 2013 – 2043 which means that one anniversary falls within that period – 2026. That spike could be as high as one third or more of the replacement cost depending upon how the building was maintained over the years.

 

Loss prevention maintenance should be incorporated into the Depreciation Report to extend the life expectancy of occupancy design and control anniversary costs associated with occupancy designs. These expenses are reserve funding expenses and not operating expenses because they take an active role in extending the life expectancy of components, and systems within a building. These expenses include but are not limited to the following:

·        Caulking – Exterior

·        Caulking – Interior

·        Painting – Exterior

·        Painting – Interior

·        Janitorial/Carpet Cleaning

·        Power Washing/Moss Removal

·        Gutter Cleaning

·        Roof/Scupper Cleaning

·        Drain Cleaning/Inspection

·        Sump Pump Servicing

·        Hot Water Tank Servicing

·        Heating Plant Servicing

·        Water/Sewer Inspection

·        Thermo Imaging Building Envelope

·        Thermo Imaging Terrain

·        Landscaping/Garden Beds/Shrubs

·        Pest Control

·        Miscellaneous Electrical Apparatus (MEA) Service & Inspection

·        Fire Alarm – Annunciator Service

·        Emergency Lighting Service

·        Elevator Service

·        Common Meeting Room Detailing

·        Common Kitchen Detailing

·        Common Bathroom Detailing

·        Common Lobby/Mail Room Detailing

·        Engineering Inspections

·        Geotechnical Inspections

·        Depreciation Reports

·        Claims Deductible & Cause Reserves

 

These expenses certainly will not eliminate the higher costs associated with occupancy design anniversaries, but they will help control them. It is during these periods that building code upgrades can be performed as well.