Condo buildings are complex and intricate, and they require a reliable source of revenue to maintain the structure, repair systems, keep everything clean, cover emergency or unexpected costs, pay staff, etc. Much of this money comes from owners in the form of condo fees. However, on rare occasions, the corporation or association may be hit with a large and unexpected expense that cannot be covered by the building’s reserve funds. In these cases, the board may be forced to levy a special assessment.

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What is a special assessment?

A special assessment is an unplanned payment or levy that a condo board has to impose on owners when unexpected shortfalls or unexpected expenditures occur in the budget, or when an expensive repair must be completed and there is not enough money in the reserve fund to cover it.
Nonexistent or insufficient reserve funds may go unnoticed for some time without the association being impacted. But, if there is a costly emergency, let’s say there is severe mould in a hallway, boards cannot afford to sit and wait for a few years. They must go ahead with the repair, which is why the special assessment would be levied. Special assessments cannot be levied for cosmetic or superficial repairs.
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 expense will deplete the reserve fund, then the board is obligated to levy an assessment. Alternatively, it may decide to raise fees in order to top off the reserve fund, depending on the situation at hand.
Older condos may be more suspectable to special assessments, especially if reserve fund studies were only recently mandated (developers and boards may not have built sufficient reserve funds for future replacements and major repairs if studies weren’t mandatory 15 or 20 years ago).
Special assessments are proportional to the percentage of common element fees each unit pays, as per the declaration. So, someone who has a smaller unit and pays less in common element fees will also pay less for a special assessment.

When can the board levy special assessments?

When it comes to special assessments, the association must be sure to follow the law, and its own bylaws. This is not the place to improvise. If in doubt about a procedure or step, consult with a lawyer.
In most cases, special assessments cannot legally be approved unless:

• The board meeting at which it was approved was advertised as the association’s bylaws require
• The special assessment vote is listed on the meeting agenda in advance of the meeting
• There was a satisfactory amount of deliberation
• A quorum of board members was present to vote on the issue
• The vote was duly noted in the meeting minutes
• The results of the vote were shared with all members in accordance with the association’s bylaws

Some additional state or provincial laws may also apply.
Most times, owners are reasonable and will understand if the problem is going to significantly affect their property values. That being said, provide as much information as possible, and don’t rush things any more than you have to. Give owners lots of concrete information about why the special assessment is needed, what experts the board has consulted with, and how the board got to its decision. Do it in writing, and host open meetings.

Sending a special assessment letter to homeowners

After the special assessment has been approved, send a letter to the owners to confirm that the association is moving forward with the assessment. Be as detailed as possible. Include the reasons for the special assessment, and be upfront about why the association must levy a special assessment instead of using money from the reserve fund.
The board is also encouraged to include any alternatives that were considered. Some alternatives may include taking out a loan from a bank, postponing repairs, or selling common assets. If applicable, let owners know if there are payment plan options available.
Most importantly, give as many details on the total assessment amount as possible, as well as each owner’s share of the assessment. That’s the part they really care about. Be clear about deadlines for payments. If there is a significant amount of money being requested, monthly payments will likely be required.
Provided your association has permission to send electronic documents to owners, you could avoiding spending money on print and mailing costs by sending the letters through Condo Control Central.  Instead of printing and mailing these letters, communicate with your community using announcements. Send updates as often as you need to, and reach more owners in less time. Better communication often leads to happier communities, even if owners aren’t always receiving good news.

Can owners refuse to pay?

Special assessments are almost always met with some annoyance and perhaps anger, but most owners will pay. If there are a couple of people who refuse to pay the assessment, they risk the same consequences as if they neglected to pay common element fees. In rare instances, failing to pay could result in a lien against the owner’s unit, and force a sale. These extreme cases will likely be resolved in court, and that means significant legal fees.
Depending on where you live, owners can requisition a meeting to force the board to discuss the issue if they believe the explanation for the special assessment is not clear or well-documented. However, the board does not have to stop the special assessment. If owners still believe that the special assessment is unwarranted after the meeting has been held, owners can requisition a meeting for the purpose of replacing the board, or seek help from a legal professional who may assist them in obtaining a court order to stop the special assessment.

What if some owners can’t pay?

Because they never plan for a special assessment, some owners may simply not have enough money to pay for the assessment. To lessen the financial burden, boards may be in a position to offer a payment plan option to owners. Check with state or provincial laws, as well as the association’s governing documents, to see if this is possible. 

Collecting payments  

If you’re levying a special assessment, you’ve already got a lot on your plate. Collecting, documenting and depositing assessment fees is going to take up even more of your valuable time. Consider shortening your to-do list and giving your owners more flexibility by using online payments.
Owners can pay via credit cards, pre-authorized debit, electronic funds transfer or ACH payment, and they get a record of when they made a payment as well as how much the payment was for. Payments are processed right away, and management doesn’t have to spend so much time chasing down cheques.

Avoiding special assessments in the future

There are circumstances where special assessments can’t be avoided. But, boards must be careful to ensure that there are sufficient funds in the reserve fund. Owners will always enjoy lower common element fees, but if fees are too low, a special assessment is more likely.
Alternative methods for raising capital may also be explored. A loan is likely to place less financial stress on owners as it can be paid back over time. However, you will need to check your bylaws to ensure the corporation or association can borrow funds.

Conclusion

Special assessments require careful consideration by boards and owners alike. Though they can be tough for associations to process, they may be essential to maintaining the value and longevity of the property.

Download Template

Download our special assessment letter template