Conceptual Glossary

Strata Finances Definitions

  • “Contingency” Reserve Fund
    The corporation (strata / condo) finances’ second required fund, as per the Strata Property Act (SPA) in British Columbia (BC). It is  a fund for a special type of common expenses, expenditures that occur less often than once a year or that do not usually occur, or every two (2) fiscal-years or more. Reserve fund […]
  • Cash Resources
    Cash resources are the total of monies available before major repairs and full replacement expenditures each fiscal-year. From a cashflow perspective, the reserve fund monies on hand at the beginning of the fiscal-year consist of the carried-over closing balance for the prior fiscal-year, the investment income on that balance for the current year, the new reserve […]
  • Closing Balance
    Reserve fund monies at the end of each fiscal-year, carried forward to the next fiscal-year, as the reserve fund opening balance. The last Annual General Meeting (AGM) approved financials are typically recognised as the starting numbers for the current year in the projection. It sometimes happens that a depreciation report is commissioned at a point […]
  • Condo | Strata Corporation
    Whether one calls a lot in a freehold or leasehold development a strata or condo, shared developments can be tilt-up industrial, duplexes, fractional vacation properties, townhomes or single-family houses sharing a bareland corporation etc. A lot can be of residential, commercial, industrial or mixed-use non-profit ownership within a single development that can also have common […]
  • Depreciation Report
    A financial planning tool that identifies the current position of a reserve fund and provides a stable and equitable funding plan. The plan is typically a recommended scenario based on a 30 year projection that factors in inflation and interest rates. The scenario is meant to offset scheduled common remediation expenditures that aim to renew […]
  • Fiscal-year
    Critical to understand this concept as it has legal implications. Refers to the condo | strata corporation’s registered first and last day cycle for recording financial activities and operating expenses and reserve fund expenditures in particular. The Annual General Meeting (AGM) approved beginning and ending financial planning dates – often over two calendar years – […]
  • Full Replacement
    Planning for the complete replacement of components – say, the sloped-roof shingles – falls under the main type of item that reserve fund planning composes with. Full replacements are quantified, have unit replacement costs and have a clear lifespan. They may appear zero, one or more times over the 30 years of a scenario depending […]
  • Major Repairs
    Operating budget regular and required maintenance expenses these are not. Non-routine major repairs occur less than once a year and are geared to maintaining components. They are reserve fund specific partial replacement expenditures that have a large capital cost per event. If an expenditure is not a full replacement then it is a major repair […]
  • Opening Balance
    Reserve fund monies at the beginning of each fiscal-year, derived from the financial analysis of strata corporation balance and consolidation sheets.
  • Operating Fund
    At the most basic level, the operating fund is a vehicle for the monies required to cover operating expenses. The Strata Property Act (SPA) defines it as the main fund required for managing strata corporation finances or as  an operating fund for common expenses that (i) usually occur either once a year or more often […]
  • Requirements
    When it comes to reserve funds, the ‘current replacement costs’ amount for common assets is an imperfect baseline, as it is rare that all components will be replaced all-at-once during the economic life of a development. Requirements – computed as ‘current replacement requirements’ in a benchmark that relies on a best-practice component inventory – are a well-accepted […]
  • Reserve Fund
    The reference fund for reserve fund planning. Strata finances are organised around an operating fund, a reserve fund and a special levies fund, if any. The reserve fund is the other active fund required under the British Columbia Strata Property Act for strata corporations’ long-term major repair and replacement of common property assets. The monies […]
  • Reserve Fund Position
    A development’s Reserve Fund’s Position is a present value of money estimate of where the reserve fund stands in relation to where it needs to be. It is not that different from measuring a person financial position by using the Personal Net Worth Calculation. Both are limited, but helpful when it comes to measuring risk […]
  • Reserve Fund Study
    A report that charts a long-range course for a board | council to manage the common assets under its responsibility. Since a development’s assets drive the value of the members’ homes – this is important. A reserve study analyses major repair and replacement needs such as concrete repairs, painting or roofing – that happen periodically […]

Physical Analysis Definitions

  • Actual Age
    Refers to the actual chronological age of a component and/or its elements expressed in calendar year(s). The chronological age of a component or element is the starting point of the physical analysis, and the effective age refines the actual age to reflect deterioration and wear, or depreciation.
  • Allowance
    Typical component inclusion standards have it that a catastrophic event without a repeatable life cycle or a predictable expenditure amount is to be excluded from the benchmark component inventory. An allowance is the component category that accounts for partial major repair component spending events that may or may not happen over the economic life of […]
  • Asset
    The term ‘asset’ has various meanings throughout many industries and services. Fundamentally, assets are of value to stakeholders because their current new-construction costing is used to determine the appraised value of a development, a value often contested but relied upon for tax and insurance purposes. Conceptually, an asset can be interpreted as part of life-cycle […]
  • Common and Limited Common Property
    According to the Strata Property Act (SPA), common property refers to (a) that part of the land and buildings shown on a strata plan that is not part of a strata lot; and (b) pipes, wires, cables, chutes, ducts and other facilities for the passage or provision of water, sewage, drainage, gas, oil, electricity, telephone, radio, […]
  • Common Asset
    According to the Strata Property Act (SPA) of BC, common assets  are (a) personal property held by or on behalf of a strata corporation; and (b) land held in the name of or on behalf of a strata corporation, that is (i) not shown on the strata plan, or (ii) shown as a strata lot […]
  • Component
    Refers to the development’s reserve fund planning’s general inventory items created or updated during the physical analysis process of a depreciation report. Components are corporation responsibility and refer to full and partial replacement of capital assets with: 1) limited expected lifespans, 2) predictable remaining lifespan, 3) a cost above a minimum spending threshold, and 4) […]
  • Component Inventory
    The point-in-time result of selecting and quantifying reserve components for reserve fund planning. This task can be accomplished through on-site visual observations, review of strata corporation design and organizational documents, a review of established strata corporation precedents, and discussion with appropriate strata corporation representative(s). The inventory of components is valid until the next depreciation report […]
  • Condition Analysis
    The section of a component inventory description that informs about the current condition of the component being reported on, based on observed conditions during a site-visit’s visual assessment, and on post site-visit reviewed characteristics.
  • Deterioration
    Deterioration happens to most physical components that are part of reserve fund planning. The initial types refer to design and/or installation flaws and these set the stage. The on-going types relate to physical forces, water, pests, pollutants, light and exposure to the elements. Contract exclusions and consultant, engineer and trade neglect are part-and-parcel of accelerated […]
  • Effective Age
    Effective age is a performance based measure of the difference between the expected lifespan and the remaining lifespan of a component or system – how long is is supposed to last minus is current age, adjusted for its condition to be either younger or older, depending on a series of factors. Differs from chronological age as […]
  • Expected Lifespan
    Estimated useful life or depreciating lifespan of a physical component. The estimated time – in years – that a reserve component can be expected to serve its intended function, if properly constructed and installed. Sometimes referred to as the normal life expectancy under normal conditions inclusive of maintenance and scheduled minor and major repairs. The […]
  • Improvements
    At the level of generalities, appraisals refer to a site as having improvements, and the Uniformat II system has a category it calls Site Improvements for hard and soft as well as stand-alone common assets such as benches. When it comes to Reserve Fund Planning, care must be taken to understand that an improvement is […]
  • Life-cycle Analysis
    The results of considering the expected lifespan, the effective age, the remaining lifespan and the resulting repair or replacement total costs for each reserve fund component in a reserve fund component inventory.
  • Linear Foot (L.F.)
    Linear foot  measurements are found in the component boxes and in the schedules of expenditures. Due to our Canadian construction background we have a bias towards the imperial system – although we work in metric readily. Simply put, lineal refers to ancestry and is not to be confused with linear. In some fields, ‘lineal’ describes a quantity of […]
  • Physical Analysis
    The part of a RFS | DR process that focuses on the benchmark component inventory’s physical asset condition assessment analysis. The life estimate task undertaken to refine the effective age of each component is typically completed at the same time during the site-visit. Together theses two tasks represent one of the two facets of a […]
  • Physical Description
    The part of the component description that details and reports on the individual components that are part of the reserve fund planning process.
  • Remaining Life | Lifespan
    The combined industry and localized estimated time – in calendar years – that a reserve fund component can be expected to function before it is functionally deteriorated past a maintenance and repair threshold.
  • Remediation
    Why do components and elements get replaced? Because of design details, construction details, maintenance details, inspection details and generally finite lifespans. A remediation’s scope of work balances the actual real-life maintenance and the theoretical renewal sides of the shared-housing equation. A remediation is the scoped work determined by stakeholders to be the result of a renewal […]
  • Renewal
    A renewal involves the process of undertaking the systemic reconstruction and/or replacement work needed due to the normal wear and deterioration of aging components reaching the end of their service life. A renewal plan involves the sustainment of a development’s common assets. A renewal plan leads to a remediation project and differs from a rehabilitation […]
  • Site-visit Date
    Refers to the calendar date on which the writer conducted the inspection of a development. This is done to determine and/or review a component inventory and the condition of these components. During the inspection, the writer gathers component images, reviews maintenance schedules, discusses the development with informed owners, sets the effective age of the components and […]
  • Square Foot (S.F.)
    Refers to square foot measurements used in the component descriptions and the schedules. The square foot sq. ft. is an imperial unit of area.
  • Wear
    Types of wear include: adhesive, abrasive, surface, fretting, erosive or corrosion effects. Wear is related to interactions between surfaces. Specifically, wear leads to the removal and deformation of material on a surface as a result of mechanical action.  Wear of metals occurs through the displacement of surface and near-surface material. This leads to the detachment […]

Financial Analysis Definitions

  • Amortisation
    What happens to intangible assets over time. An intangible asset is a non-physical asset that has a useful life of greater than one year. Examples of intangible assets are trademarks, customer lists, motion pictures, franchise agreements and computer software. Process of paying-off a loan with periodic payments based on a changing ratio of principal and interest amounts. From a condo | […]
  • Appreciation
    The increase in value of real property or other assets over time. Limited application to common assets and in depreciation reports other than measured as current replacement costs of remediation.
  • Balance Sheet
    A balance sheet is a financial statement that lists assets, liabilities and owners’ equity, at a specific point-in-time. For a strata corporation, the balance sheet presents accrued numbers and total numbers. Reserve fund planning focuses on and analyses the end of fiscal-year month numbers. A best-practice depreciation report writer will review condo | strata corporation […]
  • Benchmark
    A point-in-time tally for all condo | strata corporations that are responsible for scheduling major repairs and replacements of their common assets. A benchmark first illustrates the current fiscal-year cost to replace components – the only time this will happen is if an earthquake destroys the development or if it is terminated. Yet this is […]
  • Cashflow Funding Method
    A reserve fund planning method that aims to establish a reserve funding plan for regular and special contributions designed to offset the variable and considerable annual expenditures, inflation, interest etc. that affects a reserve fund balance. The process involves goal-seeking against scheduled expenditures until a desired funding goal is achieved.
  • Component
    The development’s common assets are laid-out in the reserve fund study | depreciation report’s physical analysis’ benchmark, as listed components following the Uniformat II classification system. The benchmark component inventory forms the basis for point-in-time reserve fund planning over a 30 year projection. The projection is the same in all scenarios with the individual components […]
  • Component Financial Analysis
    The section of the component inventory description that reports on life-cycle analysis and the historical and operating fund expenses and reserve fund expenditures for a component.
  • Construction Inflation Rate (CIR)
    The projected Construction Inflation Rate (CIR) used to estimate the future cost of remediation for components and their elements. The CIR factors in materials, labour, demolition and ancillary costs inclusive of inspections, engineer costs, permits, third-party warranties etc. The CIR includes contractor mobilisation and front end costs, overhead and profit, as well as detailed schedules […]
  • Current Replacement Requirement(s)
    The benchmark analysis produces the current estimated monies number required to cover the major repairs and replacements of components from construction of the development to the date of the analysis. This number factors in fiscal-year based inflation, interest, transfers and expenditures from construction. Replacement requirements are usually a combination of prescriptive requirements that spell out […]
  • Current Replacements
    No development ever replaces a component inventory all at once, but these individual and total component replacement cost(s) as established during a current fiscal-year, are the only way that we have to set up reserve fund planning that allows for the comparison of two developments. It is best to understand current replacements as the cost […]
  • Depreciation
    Most common assets except land depreciate. The main factors of depreciation are physical and functional. The actual use of assets determines physical deterioration. The obsolescence of common assets determines their functional deterioration. Depreciation reduces the value of the assets not the value of accounts or of cashflows. Until not too long ago capital expenses were […]
  • Depreciation – Straight Line
    From an economic and taxation perspective, the accounting concept refers to the annual decrease in dollar value of tangible assets  whether they are being used or idle, and whether they have a salvage value or not. In this scheme, the anticipated expected life of the assets are predetermined to be 3, 5, 10, 15, 20 […]
  • Depreciation – Timing
    To simplify accounting, calculating date intervals for depreciation over several years requires a convention that typically assumes that the asset was acquired at a specific time during the year. Tax codes have developed the half-year convention – the asset is acquired in mid-year and the first and last years of depreciation only have 50 percent […]
  • Estimate
    An estimate cost is an inferred value based on data collected from a sample of costing guides, collected data, and point-in-time quotes. Reserve Fund planning renewal estimates are first, found in the benchmark as a current costs for one (1) iteration  of a renewal for an aging component; and second, in the scenarios’ current and […]
  • Expense
    When it comes to strata finances, an expense is reported on the income statement as a cost to be expired before the end of a current fiscal-year. It indicates what revenue must be raised to expire that recurring daily, weekly, monthly, seasonal, or annual expense. This would be electrical bills, landscaping bills, management fees etc. […]
  • Financial Analysis
    The part of a Depreciation Report that focuses on the current position of the reserve fund – measured in monies or percentage – and on the recommended reserve fund contribution increase rate as derived with cumulative projected reserve income and expenditures over time. The financial analysis and its representations is one of two interdependent parts […]
  • Fully-funded | Full Funding
    Simple percentage or measurement being calculated and used in different, conflicting and proprietary ways that often do not meet certifying associations’ methodology. It also doesn’t help that certifying bodies base the calculation on different component inventory definitions. The component inventory on which the calculation is made may include expenditures that happen over the next thirty-years […]
  • Fund Status
    Supposed to be a percentage measure that reflects the ratio of a current reserve fund position as compared to a fully-funded measure. Presently difficult to trust this measurement as there are too many ways that each element variable it is calculated. Best-practice depreciation reports calculate the fund standing based on the closing balance over the […]
  • Investment Income Rate (IIR)
    Monies in a strata corporation’s reserve fund garner interest at varying rates depending on the tax-free investment vehicles used. Different vehicles with different redemption horizons are used depending on the anticipated expenditures. This dynamic in great part determines how much monies are to held in cash in the reserve fund each fiscal-year. As more monies […]
  • Net Worth
    Reserve fund planning’s benchmark analysis is as important to grasp as personal or household net worth – assets owned minus debts owed – when it comes to a development’s finances. Net worth is stated as at a particular year in time, typically a current year. No one would go to a lender and say that their net worth will […]
  • Per Lot (PL)
    Calculation that divides the reserve fund variables by the number of strata lots in a strata corporation. Producing the analysis on the basis of each strata lot’s entitlement units is typically left to the Property Manager.
  • Per Lot Per Month (PLPM)
    Taking the reserve fund variables that have been divided Per Lot (PL) and further dividing these into per month numbers that reflect existing strata living financial conditions.
  • Projection
    A projection is a representation of future changes based on past  assumptions about future trends. It is a concept through which the brain understands the world, or an hypothesis about what is going on, or an imagined scenario about what can happen. The component inventory provides the raw-data for the 30 year projection, to which is […]
  • Projection Start-date
    Refers to the fiscal-year opening balance date of the first fiscal-year in the thirty year projection common to all scenarios in a depreciation report. As a fiscal-year is rarely set on a calendar-year and as many strata corporations do not have their Annual General Meeting (AGM) on the last day of the fiscal-year, the projection […]
  • Replacement Cost
    The estimated cost for replacing, repairing, or restoring a reserve component to its functional condition based on current market pricing and work conditions. We believe that costing that comes close to actual cost by a factor of plus or minus 15 percent within a three-year window is achievable and realistic. A replacement cost reflects remediation […]
  • Reserve ‘Adequacy’
    The ratio, at a particular point of time – typically the end of the fiscal-year – of the actual or projected reserve fund balance to a ‘fully-funded’ ceiling amount, expressed as a percentage. The term originates from the work of our North American sister associations, with their specific definition of what a component is for […]
  • Reserve Fund Annual Allocation
    The benchmark analysis produces this reserve fund regular contributions specific number for the current fiscal-year at the point-in-time of the depreciation report assignment. Based on market forces, cumulative expenditure events since construction and on the efforts of successive strata councils, it represents a current optimized regular allocation amount that could be drawn on the owners […]
  • Reserve Fund Balance
    Also known as reserves, reserve accounts or cash reserves. In theory, it is the actual reserve monies that the strata corporation has identified and is investing for use to defray the future repair or replacement costs of components. When a lot is bought there is the expectation that common property is maintained and in usable […]
  • Reserve Fund Standing
    Based on a well-constructed realistic component inventory and on well-benckmarked current replacement requirements’ calculations, a reserve fund standing has a fiscal-year based cumulative closing balance divided by a carried-over benchmark adjusted current requirements amount for the same fiscal-year, expressed as a percentage. The cashflow method stipulates that individual components’s funds can be allocated from one asset […]

Recommendation Definitions

  • 3/4 vote
    As defined by the Strata Property Act (SPA) of BC, a 3/4 vote is a vote in favour of a resolution by at least 3/4 of the votes cast by eligible voters who are present in person or by proxy at the time the vote is taken and who have not abstained from voting.
  • 50 Percent Majority Vote
    According to the Strata Property Act (SPA) of BC, a 50 percent majority vote refers to a vote in favour of a resolution by more than 1/2 of the votes cast by eligible voters who are present in person or by proxy at the time the vote is taken and who have not abstained from voting.
  • Annual Regular Contributions
    The annual regular contributions to the reserve fund from the condo | strata corporation’s total collected strata fees. Typically agreed to as part of the Annual General Meeting (AGM)’s budget process vote. May lead to retroactive monthly assessment adjustments on an entitlement basis, if the AGM was after the fiscal-year-end date. The total amount is […]
  • Contribution Increase Rate
    The year-to-year increase rate that factors in both the inflation and interest rate to determine the required increase percentage for regular reserve fund contributions. This rate cannot be based on simply meeting the shortfall for a calendar year, as on a cumulative basis over multiple fiscal-years, meeting one year’s shortfall automatically creates an exponentially growing […]
  • Effective Recommendations Start-date
    Depreciation reports include recommended changes to the amount and/or magnitude of regular and special contributions to the reserve fund of a strata corporation. The effective recommendations start-date exists because the strata corporation will vote on changes at the next AGM, and implement these changes as of the beginning of the first day of the fiscal-year […]
  • Funding Goals
    Regardless of of reserve fund planning benchmarking and best-practice recommendations, funding goals reflect the annual choices of condo | strata boards | councils regarding a strata corporation’s reserve fund. There are a multitude of interpretations based on incomplete analysis and bias – unfunded, baseline, threshold etc. Only two types of funding goals go beyond the baseline funding […]
  • Funding Plan
    A condo | strata corporation’s financial plan is to provide income to a reserve fund. It does so based on a funding goal that aims to offset anticipated current and future expenditures from that reserve fund on a fiscal-year basis.
  • Funding Principles
    Best-practice reserve fund planning recommendations are predicated on sufficient funds when required, stable contribution increase rate over the fiscal-years of a scenario, evenly distributed special contributions, if any, and fiscally responsible draws on the reserve fund.
  • Recommended Regular Contributions
    Provided depreciation report’s recommended next fiscal-year’s annual reserve fund contributions that are to be equal to or below the benchmark’s annual reserve fund allocation computed amount. As any change to regular and/or special contributions must be voted on as part of a proposed budget and/or resolutions at general meeting, recommended contributions amounts are typically not […]
  • Scenario(s)
    The legislation requires that each depreciation report provides three scenarios. Writers have been proposing at least three scenarios based on a myriad of provider idiosyncrasies. Common sense dictates that one scenario should represents the future for a condo | strata corporation that elects to continue approaching and funding their requirements the way they currently are. […]
  • Special Contributions
    Special contributions are reserve fund contributions with interest accrued in the reserve fund – above and beyond regular reserve fund contributions – typically for a future fiscal-year when a large expenditure occurs. Special contributions are in effect 50 percent simple-majority vote monies on the same footing as operating budget expenses –if the expenditure was detailed in an existing RFS|DR’s […]
  • Special Levies
    Special levies are Strata Property Act (SPA) mandated and regulated. They are in effect 3/4 vote resolution based monies that are directed to a separate restricted account. Therefore, special levies do not belong in reserve fund planning nor does their interest accrued. Special levy monies are to be kept outside of the operating or reserve […]