The Dreaded Word 'Special Assessment'
Haven’t come accross too many of these scenarios, but something are you condo owners and prospective buyers NEED to know.
A special assessment is an additional payment or a levy that a condo board has to impose when unexpected shortfalls or unexpected expenditures occur in the budget, or when an expensive system has to be replaced (i.e., windows, mechanicals) and there is not enough money in the reserve fund to cover for it.
Special assessments often occur in condos that were built before 2001 when reserve fund studies were not mandated by the previous Condo Act. As a result, developers and boards failed to build up sufficient reserve funds for future replacements.
It is the duty of a board to impose a special assessment when necessary and owners have to comply, as is the case for fees. Owners cannot vote on whether or not to levy a special assessment.
Naturally, a board that has failed to have a reserve fund study or has caused the situation that led to the assessment can be voted out by owners at a requisitioned meeting or even sued for lack of due diligence. But this is easier said than done!
Special assessments can’t be levied if there is a large surplus or if the reserve fund is sufficient to cover the replacement. However, if the replacement depletes the reserve fund, then the board has to levy an assessment to bring the reserve fund up to date. Or the board may choose to raise fees in order to top off the reserve fund.
Special assessments can’t be levied for repairs that are merely cosmetic to embellish a condo or to accommodate someone’s taste for luxury!
Special assessments require careful consideration by boards and adequate communication with owners, including letters, notices, and even an information meeting to explain the necessity as well as what would happen without this assessment.
There are various ways of levying an assessment: It can be added to the fees for an X number of months (less painful approach), or paid in 2 to 4 instalments, or in one lump sum payment.
Special assessments are like a fee and are proportional to the % of common expenses each unit has, as per the declaration.
As soon as special assessments are contemplated, they have to be noted in status certificates so that potential buyers are made aware of this forthcoming expenditure.
