{"id":300,"date":"2017-05-20T20:25:24","date_gmt":"2017-05-21T00:25:24","guid":{"rendered":"http:\/\/www.joshmulherin.com\/blog\/?p=300"},"modified":"2017-05-20T20:25:24","modified_gmt":"2017-05-21T00:25:24","slug":"leaky-condo-crisis-rears-its-head-again-in-b-c","status":"publish","type":"post","link":"https:\/\/www.joshmulherin.com\/blog\/2017\/05\/20\/leaky-condo-crisis-rears-its-head-again-in-b-c\/","title":{"rendered":"Leaky condo crisis rears its head again in B.C."},"content":{"rendered":"

Leaky condo crisis rears its head again in B.C.<\/h1>\n
\n

Evidence of a second wave in British Columbia\u2019s leaky-condo crisis is beginning to emerge, 15 years after the first one subsided.<\/p>\n

It is becoming more apparent as condo strata corporations prepare mandated depreciation reports on their buildings. That process is forcing them to own up to the condition of their properties and the shortcomings of maintenance programs for structures that weren\u2019t fixed in the first wave of repairs.<\/p>\n

Some are buildings that haven\u2019t started leaking until recently, or that owners patched over instead of repairing their underlying defects.<\/p>\n

There are still potentially thousands of faulty units that were built during the so-called \u201cleaky-condo\u201d period \u2014 from 1982-99 \u2014 which were never repaired, but figures on how many have been fixed are difficult to come by.<\/p>\n

From property records, consultants Dale McClanaghan and Jason Copas counted about 160,000 condo units in 10,350 buildings built during the period when buildings leaked prematurely.<\/p>\n

<\/div>\n

In a 2007 report for the B.C. Homeowner Protection Office, McClanaghan and Copas estimated that 71,600 of those condo units would suffer leaks, and at the rate repairs were being made, between 48,260 and 58,000 would be repaired by the end of 2012.<\/p>\n

That would have left between 14,120 and 24,000 left to repair after 2012, although there is no official count of the number of units that have been repaired.<\/p>\n

Lax maintenance has been a long-standing issue for stratas, according to Tony Gioventu, executive director of the Condominium Homeowners Association of B.C., \u201chence the evolution of the introduction of depreciation reports.\u201d<\/p>\n

The province made a depreciation report a requirement of the Strata Property Act in 2011. It contains a detailed assessment of a condo building\u2019s condition, and a schedule for when major components, including its exterior, would need repair.<\/p>\n

\u201cDepreciation reports are forcing strata corporations to acknowledge what they have, and forcing them into planning (for repairs),\u201d Gioventu said in an interview.<\/p>\n

The requirement was enacted in 2011, but wasn\u2019t put in force until last December to give B.C.\u2019s 30,000 strata corporations time to commission the reports.<\/p>\n

However, stratas have the option to exempt themselves from the requirement by agreement of three-quarters of their members.<\/p>\n

Gioventu said that provision was put in to accommodate commercial-property stratas or strata-ownership arrangements on bare land where owners build their own homes and have no common services.<\/p>\n

He said there there is no doubt some older residential strata corporations are exempting themselves because they know a depreciation report is \u201cgoing to give them an ugly picture,\u201d but the market is going to catch up with those situations when banks refusing financing on sales without the reports.<\/p>\n

Gioventu said if there is a common theme, it is that \u201cstrata corporations have not been maintaining their buildings,\u201d which is evident in problems that are cropping up with building decks and balconies, roofing systems and windows.<\/p>\n

The depreciation reports are coming in almost five years after the province cancelled an interest-free loan program that was put in place and run through the B.C. Homeowner Protection Office, to help cash-strapped homeowners pay for repairs.<\/p>\n

The loan program ran for 11 years but was cancelled in 2009, leaving homeowners to finance repairs either on their own or through their strata corporations.<\/p>\n<\/div>\n

\n

That\u2019s hitting home for a 21-unit condo building in Port Coquitlam, which undertook an inspection report that revealed a potential $1.5-million repair bill to replace the 27-year-old building\u2019s entire exterior.<\/p>\n

Strata council member Cherif Abdallah said in a story on Global News that each owner is looking at paying $71,000, which is putting residents \u2014 mostly seniors, but some young families \u2014 in a tough spot.<\/p>\n

\u201cWe\u2019re all at a loss; we don\u2019t know where we\u2019re going to go,\u201d Abdallah said.<\/p>\n

Vancouver realtor Lori Antunovic expects to be foreclosed on in her Fairview-area condo because she won\u2019t be able to finance a possible $135,000 assessment for repairs.<\/p>\n

Antunovic had a property inspection done before she bought the apartment in an eight-unit strata on Eighth Avenue 19 years ago, \u201cand everybody said it was fine here,\u201d she said.<\/p>\n

It wasn\u2019t until about seven years ago, Antunovic said, that she started noticing problems, leaks into her bathroom first, and then the dining room. More leaks became apparent around decks and planter boxes, she said.<\/p>\n

\u201cAnd the exterior stucco just looks like a moss patch,\u201d Antunovic said.<\/p>\n

She added that the strata has made spot repairs including new decks and, a couple of years ago replaced the exterior flashing and applied new paint.<\/p>\n

\u201cThat didn\u2019t fix the problems at all,\u201d Antunovic said, but her assessment to pay for it was $10,000.<\/p>\n

Last year, Antunovic said, the strata corporation commissioned an engineering report that recommended replacing the building\u2019s exterior with a rain-screen wall.<\/p>\n

\u201cI don\u2019t have any options,\u201d she said. \u201cMy options are to list my home and try to get someone else to buy my problem, or find another job that has more stability some time in the next two months.\u201d<\/p>\n

James Balderson, a long-time advocate for leaky-condo owners, said the Port Coquitlam condo owners aren\u2019t alone; he still fields about three or four inquiries a month from people dealing with the problem.<\/p>\n

\u201cMany are angry with the government for killing the (interest-free) loan program,\u201d said Balderson, who led a group under the name Coalition of Leaky Condo Owners.<\/p>\n

\u201cThey\u2019re forced into the same situation as before the loan program, whereby they are unable to refinance their condos and raise funds, and strata corporations make efforts to foreclose on them to collect amounts owing.\u201d<\/p>\n

Time is against many owners of condos from the so-called leaky period, according to Gioventu.<\/p>\n

Condo buildings are defined as leaky when elements of their building exterior fail prematurely, \u00adwith prematurely meaning in less than 25 years.<\/p>\n

\u201cIt\u2019s no longer a leaky condo when a building is older than 25 years and it\u2019s been neglected,\u201d Gioventu said, \u201cIt\u2019s just a neglected building.\u201d<\/p>\n

He said that more than a decade of heightened public awareness around the problem should have prompted owners to deal with their problems.<\/p>\n

\u201cThere was an opportunity, given the time frame, over a 15-year period, to investigate buildings and look at them for maintenance requirements and inspection options,\u201d Gioventu said. \u201cWhy didn\u2019t strata corporations do that when they had that opportunity?<\/p>\n

\u201cIn retrospect, the costs they would have faced would have been marginal, with the no-interest loan program, compared with what they\u2019re facing now,\u201d Gioventu said.<\/p>\n<\/div>\n

\n

In terms of the number of leaky condos out there, the only figure the Homeowner Protection Office has is that some 16,000 homeowners availed themselves of that interest-free loan program.<\/p>\n

It was supported by a $750-per-unit levy applied to new construction, and paid out $670 million in loans during its 11-year span, but was terminated in 2009 during a slowdown in the new construction market.<\/p>\n

\u201cMy sense is the trajectory (of failures and repairs) didn\u2019t change after 2007,\u201d McClanaghan said. \u201cWith the absence of the loans for repair assistance, it likely caused a slower pace of remediation.\u201d<\/p>\n

During their work in 2007, the consultants found the average value of interest-free loans had increased to $63,511 per unit from $24,144 in 2000, due to rising construction costs.<\/p>\n

However, the government has said it won\u2019t be reviving the plan.<\/p>\n

The minister responsible for housing, Rich Coleman, was not available for an interview, but in an emailed statement a representative of the Homeowner Protection Office said they are \u201cnot seeing or anticipating a significant increase in \u2018leaky condos.\u2019 \u201d<\/p>\n

\u201cThe province has no plans to reinstate the reconstruction loan program,\u201d said Wendy Acheson, the HPO vice-president and registrar.<\/p>\n

She said leaks \u201care caused by several factors, including lack of adequate maintenance,\u201d and depreciation reports should help strata corporations determine the costs for looking after their buildings.<\/p>\n

However, for buildings in which major problems have been discovered, McClanaghan said, the financial strain posed by construction estimates makes it difficult for strata corporations with problems to obtain the approval of 75 per cent of owners they need to go ahead with special assessments to cover the costs of repairs.<\/p>\n

\u201cThat probably puts more buildings into limbo where they continue to deteriorate,\u201d McClanaghan said.<\/p>\n

Alan Cadwell, a cost-control adviser for strata councils, agrees with McClanaghan on that point.<\/p>\n

He built a business, B.C. Condo Advocate, out of advising strata councils how to mitigate the costs of major repairs during the crisis, but his work in this area largely evaporated after the loan program ended.<\/p>\n

While buildings from the era are still leaking, Cadwell said, strata councils are choosing to do \u201ctargeted repairs\u201d that patch leaks, rather than comprehensive repairs that fix underlying defects, \u201cbecause they simply don\u2019t have the money.\u201d<\/p>\n

Contractors are still busy with major condo renovations, said Anton Van Dyk, business development manager for the firm Centra Construction Group, but that is because they are doing more restoration work on older buildings where siding and exteriors have reached the end of their life.<\/p>\n

\u201cWhat we fixed 10 years ago was everything built in the 1980s,\u201d Van Dyk said. \u201cNow, what we tend to fix is everything built in the \u201960s.\u201d<\/p>\n

Van Dyk worked as a consultant on leaky-condo remediation projects earlier in his career, and saw jobs that were planned and ready to proceed put back on the shelf after the loan program was cancelled \u201cbecause nobody could get the financing to do the work.\u201d<\/p>\n<\/div>\n

\n

Cadwell said the interest-free loan program \u201cwas a great program,\u201d arguing it didn\u2019t cost much money compared with the amount of construction activity it sparked, and helped a lot of homeowners more easily recover from the huge setback of premature major repairs.<\/p>\n

\u201cWe were able to fix buildings \u2014 comprehensively fix, put good warranties on them for 10 years \u2014 values went up and they could sell units and recover their costs,\u201d Cadwell said.<\/p>\n

Condo owners have options. If individual owners can\u2019t afford the full amount of special assessments, or can\u2019t finance repairs on their credit, strata corporations can take out loans on behalf of the building.<\/p>\n

\u201cIn the last two or three years, there has been an increase in the number of lenders that fund these (strata loans),\u201d said Brian Chatfield, president of North-Vancouver-based 1 City Financial Ltd.<\/p>\n

TD Bank, Bank of Montreal, Vancity and Blueshore Financial credit unions have joined private lenders in offering the loans, said Chatfield, who brokers such financing as part of his business.<\/p>\n

\u201cIt\u2019s another option for payment that sometimes helps get resolutions passed so work can take place,\u201d Chatfield said.<\/p>\n

Lenders secure the loans against the value of unpaid levies, which the strata corporation has considerable power to collect if an individual owner doesn\u2019t keep up with payments, he said.<\/p>\n

The catch, Chatfield said, is that the loans are considered commercial financing, with interest rates that can be higher than \u201cwhat people are accustomed to on their residential mortgages.\u201d<\/p>\n

However, the rates are becoming more competitive as more lenders have entered this market, according to Jeremy Bramwell, president of the appraisal firm Bramwell & Associates Realty Services Ltd., a major provider of depreciation reports to stratas.<\/p>\n

Bramwell said another thing the depreciation reports accomplish is forcing strata corporations to confront how well they\u2019ve funded their reserve accounts, which is pertinent to any major repairs their buildings face.<\/p>\n

He said it is a constant battle for stratas. The tendency is to keep strata maintenance fees as low as possible, versus building up reserves for major repairs.<\/p>\n

In his experience, strata reserve funds average between 10 and 25 per cent of being fully funded.<\/p>\n

\u201cThe lower (the ratio), the more special assessments you\u2019re going to have, and the higher they\u2019re going to be when they come,\u201d Bramwell said.<\/p>\n

Chatfield said arranging for strata borrowing is a challenge, considering that \u201cyou are dealing with communities,\u201d and getting 75 per cent of the community members to agree on taking out a loan is still difficult.<\/p>\n

\u201cThere are some members of the community that are better off than others,\u201d with a mix of older owners who may have considerable resources mixed with first-time buyers without much equity to leverage, he said.<\/p>\n

If an owner cannot pay their portion of a loan back, the strata corporation can place a lien on their interest and foreclose on the owner to enforce repayment, Chatfield said. Repayment of the strata loan will have priority, even over the owner\u2019s own mortgage.<\/p>\n<\/div>\n

\n

Chatfield said he has brokered loans for stratas to cover remediation work for $600,000 to $1 million, but said lenders will also back off when the ratio of a loan to property value is too high, such as $70,000 per unit against units worth $140,000 to $150,000.<\/p>\n

\u201c(Lenders) don\u2019t want to be there,\u201d he said, and this remains a \u201cniche\u201d form of lending.<\/p>\n

Gioventu said encouraging strata councils to do adequate maintenance work is one of the industry\u2019s challenges regardless of a building\u2019s age. Building exteriors wear out in time and need to be replaced, Gioventu said, and stratas need to prepare for that.<\/p>\n

\u201cPeople think living in strata is cheaper (than living in a house). It\u2019s not cheaper,\u201d Gioventu said. \u201cYou don\u2019t need to do as much (maintenance) work because you hire experts (to do it), but it isn\u2019t necessarily cheaper.\u201d<\/p>\n

As written by:\u00a0depenner@vancouversun.com<\/a><\/p>\n

Major milestones in B.C.\u2019s leaky condo crisis<\/b><\/p>\n

1995:<\/b> The Building Envelope Research Consortium is established through an initiative of Canada Mortgage and Housing Corporation to act as a co-ordinating agency for the research of building envelope problems in B.C.<\/p>\n

1996:<\/b> CMHC releases its Survey of Building Envelope Failures in the Coastal Climate of British Columbia.<\/p>\n

1998: <\/b>Former B.C. Premier Dave Barrett establishes a commission of inquiry into the quality of condominium construction in B.C. Its 82 recommendations include changes to zoning regulations, building codes, provincial and federal law, financing, contractor licensing, and requirements of design professionals; and establishment of a compensation fund for reconstruction and a provincial Homeowner Protection Office.<\/p>\n

1999:<\/b> A second Barrett Commission is established following the collapse of the New Home Warranty of British Columbia Inc. Findings recommend 100-per-cent compensation up to $25,000 per unit for repairs, with costs shared equally between the provincial and federal governments and the B.C. condominium construction industry.<\/p>\n

2000:<\/b> The B.C. Assessment Authority announces it will cost $220 million to repair the 14,521 leaky condo units identified in that year\u2019s property assessments.<\/p>\n

2000:<\/b> Housing Minister Jan Pullinger announces new regulations will require contractors to be licensed by the Homeowner Protection Office and to provide third-party warranty insurance to obtain permits for building-envelope repairs.<\/p>\n

2001:<\/b> The B.C. government estimates 65,000 condominium units have suffered water damage that will cost $1.5 billion to repair. Some advocacy groups predict the damage estimates will grow to 90,000 units and $2 billion.<\/p>\n

2001: <\/b>The board of the Greater Vancouver Regional District calls on the two senior levels of government to activate disaster-relief legislation and provide financial assistance to leaky condo owners.<\/p>\n

2003:<\/b> A judge rules that condo owners must hold a meeting and pass a special resolution with three-quarters approval of condo owners before a class-action lawsuit can be started.<\/p>\n

2005:<\/b> Six years after the New Home Warranty came into effect, 100,000 new residences have been brought to market with the warranty insurance attached.<\/p>\n

2008:<\/b> A report by the Homeowner Protection Office states at least 72,000 strata units leaked and suffered water damage, and possibly as many as 87,500 units.<\/p>\n

2009:<\/b> B.C. government scraps the 10-year-old program, which provided interest-free loans of almost $670 million to the owners of 16,000 condos, primarily on the South Coast.<\/p>\n

2010:<\/b> A precedent-setting decision by the Supreme Court of Canada means owners of leaky condos can pursue the general contractor\u2019s insurance policy to try to recoup some of the cost of damages caused by defective construction by subcontractors.<\/p>\n

Compiled by Vancouver Sun librarian Kate Bird<\/p>\n<\/div>\n","protected":false},"excerpt":{"rendered":"

Leaky condo crisis rears its head again in B.C. Evidence of a second wave in British Columbia\u2019s leaky-condo crisis is beginning to emerge, 15 years after the first one subsided. … [read more<\/a>]<\/p>\n","protected":false},"author":2,"featured_media":301,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[19,20],"tags":[105,106,104,107,4,3],"_links":{"self":[{"href":"https:\/\/www.joshmulherin.com\/blog\/wp-json\/wp\/v2\/posts\/300"}],"collection":[{"href":"https:\/\/www.joshmulherin.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.joshmulherin.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.joshmulherin.com\/blog\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.joshmulherin.com\/blog\/wp-json\/wp\/v2\/comments?post=300"}],"version-history":[{"count":1,"href":"https:\/\/www.joshmulherin.com\/blog\/wp-json\/wp\/v2\/posts\/300\/revisions"}],"predecessor-version":[{"id":302,"href":"https:\/\/www.joshmulherin.com\/blog\/wp-json\/wp\/v2\/posts\/300\/revisions\/302"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.joshmulherin.com\/blog\/wp-json\/wp\/v2\/media\/301"}],"wp:attachment":[{"href":"https:\/\/www.joshmulherin.com\/blog\/wp-json\/wp\/v2\/media?parent=300"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.joshmulherin.com\/blog\/wp-json\/wp\/v2\/categories?post=300"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.joshmulherin.com\/blog\/wp-json\/wp\/v2\/tags?post=300"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}