North of the Border – Reserve Study vs. Depreciation Report
HOA Detective™ | May 5, 2026: Years ago, the Detective was taking in the spectacular view of the Victoria, BC Inner Harbour with a Canadian condominium board member, discussing the travails of condominium (strata) ownership. Suddenly, he remarks, “Here in British Columbia, we call reserve studies’ depreciation reports.”
Reserve Study: In the United States, the term “reserve study” carries a somber, responsible tone suggesting prudence and forethought. It suggests fiscal responsibility – setting money aside (reserving) for future needs – but the term subtly obscures the underlying economic reality:
Buildings deteriorate, and that deterioration has a cost. The cost is not something that can be set aside and forgotten for 20 years until the roof starts leaking.
Depreciation Report: In British Columbia and other parts of Canada, the term “depreciation report” removes that ambiguity. It implies clearly and plainly that the vertically oriented strata condominium is a wasting asset. Roofs, facades, mechanical systems, and structural components are being consumed over time.
The report exists to measure that consumption and assign a financial consequence to it. This is not merely semantics. The Canadian nomenclature is a reframing of the topic that is designed to generate actionable behavior, either by the current owners or buyers, when a strata property is resold.
Optional Guidance: In the U.S., the reserve study is more presented as optional guidance both in practice and by statutory treatment. So much so that, as of 2026, Florida is the only U.S. state that has enacted a true mandatory reserve funding requirement for defined structural components of condominium buildings.
It may take a village to raise a child, but apparently, it takes the death of 98 people to educate even ONE state legislature!
Warning Label: The term depreciation report on the other hand, sounds more like a financial warning label. This difference becomes critical when boards are faced with politically unpopular decisions like:
- Raising dues.
- Increasing reserve funding.
- Confronting deferred maintenance with special assessments.
Under the “reserve study” framework, it is easier to defer decision-making – if you don’t like the results, just “study” the topic some more. Under a “depreciation” framework, deferral becomes harder to justify.
Objective is the Same: At the core, both systems attempt the same thing: to quantify the lifecycle of common elements and align funding with future capital needs. But the Canadian terminology is more explicit about what is actually happening:
- Each generation of owners is consuming a shared capital asset.
- Each year of ownership represents a transfer of value from the asset base building) to the current owner in the form of use.
- That transfer must be offset financially, or the burden is pushed forward to the next generation of owners.
- After Gen 3 or 4, the economic value of the asset base is dramatically diminished in the absence of sufficient reserves.
Intergenerational Value: This is the point where the concept of intergenerational equity enters the picture, and it is where many U.S. condominium associations begin to fail.
When reserves are underfunded by current (Gen 1) owners, the benefit is to the Gen 1 owners in the form of artificially low dues, while future owners (Gen 2, 3,4) inherit large capital obligations.
The Gen 1 equity, in the form of low dues, is real. The depreciation that occurs during Gen 1 and sometimes Gen 2 is also real. If reserve funding does not keep pace with the depreciation of the commonly owned assets, the economic value of the strata condominium is depreciated. This is the basis of the Canadian model.
When Gen 1 owners enter the resale market with a condominium unit in an aging building, they are peddling a liability (not an asset) unless the reserves are sufficient to offset the accumulated depreciation.
Reality of the Vertical (Strata) Market: Calling the analysis a “depreciation report” forces that reality into the open. In vertical communities – mid and high-rise condominiums with complex systems – the stakes are far higher.
These buildings are not static. They are engineered systems under constant stress. Waterproofing fails. Reinforced concrete deteriorates. Mechanical systems age into obsolescence. Elevators, fire systems, and building envelopes all require periodic renewal. ² Without adequate funding and proper maintenance, these systems degrade.
Which raises the Uncomfortable Question: Is the United States avoiding the truth by softening the language? From the perspective of HOA due diligence, the answer is often yes. The term“reserve study” has allowed boards and management companies to treat long-term capital planning as flexible, negotiable, or a deferrable exercise.
It permits room for optimistic assumptions, extended useful lives, and funding strategies designed to minimize near-term financial pressure. In effect, it allows depreciation to be ignored – at least temporarily.
The More Honest Canadian Model: Imperfect as it is, the Canadian approach starts from a more honest premise that assumes depreciation is happening whether you acknowledge it or not. The collapse of Champlain Towers South in Surfside, Florida, in 2021 forced a long-overdue reckoning in the United States.
While the causes were complex, one element was undeniable: deferred maintenance and underfunded reserves played a central role in the building’s deteriorating condition and ultimate failure.³
Surfside was not an isolated anomaly. It was an extreme outcome of a common pattern. And that pattern exists in Canada as well. In Canada, multiple strata corporations have faced severe financial distress due to underfunded depreciation and major envelope failures, particularly in the well-documented “leaky condo crisis” of the 1990s and early 2000s.⁴
Thousands of units required extensive remediation, often funded through massive special assessments that blindsided owners. More recently, aging high-rise strata buildings in Vancouver and other urban centers have begun confronting similarly large capital burdens tied to deferred maintenance, aging infrastructure, and insufficient reserve funding. ⁵
A Valuation Problem Hiding in Plain Sight: If the Canadian framing is more accurate – if a reserve study is, in fact, an analysis of the economic depreciation of commonly owned assets – then it forces a much larger question onto the table:
Are we valuing condominiums correctly if we are not taking into account an accurate assessment of the accumulated depreciation of the common elements?
Because under this lens, a condominium unit is not just a piece of real estate. It is a fractional interest in a continuously depreciating, capital-intensive system. The unit’s market value is therefore inseparable from the condition – and funding – of the shared assets that sustain it. Which leads to a second, more uncomfortable question:
If that is true, is the standard U.S. real estate practice of relying on comparative market analysis (CMA) fundamentally flawed when applied to condominium resales?
After all, a CMA typically compares recent sales of “similar” units – same floor plan, same building, same neighborhood. But in most cases, it does not rigorously account for the financial condition of the association, the adequacy of reserve funding, or the embedded liability created by underfunded depreciation. In effect, the CMA may assume equivalency where it may or may not exist.
Two identical units, in two identical buildings, can carry dramatically different financial futures depending on how well (or poorly) depreciation has been measured and funded. Yet the market often prices them as if they are interchangeable.
The Granddaddy of all Questions: This brings us to the question – arguably the most critical of all:
Shouldn’t we incorporate the accumulated depreciation of resale condominiums into the appraisal of 20+ year-old strata properties, particularly mid-rise and high-rise condominium buildings?
At this point, the depreciation curve is no longer theoretical. Major systems are approaching or exceeding their useful lives. Capital expenditures are no longer distant projections – they are imminent realities. And any gap between reserves and actual needs begins to surface with increasing force.
Notes | Sources
1. British Columbia, Strata Property Act, SBC 1998, c 43. https://www.bclaws.gov.bc.ca/civix/document/id/complete/statreg/98043_00
2. Appraisal Institute of Canada, “Understanding Reserve Fund Studies.” https://www.aicanada.ca/article/understanding-reserve-fund-studies/
3. National Institute of Standards and Technology (NIST), Surfside Collapse Investigation. https://www.nist.gov/disaster-failure-studies/champlain-towers-south-collapse
4. Canada Mortgage and Housing Corporation, “Leaky Condo Crisis” reports. https://www.cbc.ca/news/canada/british-columbia/bc-leaky-condo-crisis-1.4609418
5. British Columbia Financial Services Authority, Strata Depreciation Report Guidance. https://www2.gov.bc.ca/gov/content/housing-tenancy/strata-housing/operating-a-strata/repairs-and-maintenance/depreciation-reports/depreciation-report-requirements?utm_source=chatgpt.com
Editor’s Note: Readers following the Fixing the Imperfect Machine™ series can expect Part IV to land in the coming weeks. We’re intentionally spacing installments to keep the discussion fresh while broadening the lens on HOA governance, finance, and structural risk. The next chapter will build on prior themes while pushing deeper into the systemic mechanics that continue to challenge common-interest developments.
Because You’re Buying More than a Home!
