The most hated words discussed by Boards or Condominium Managers. The ugly truth is that Special Assessments are becoming more and more common. An Special Assessment can be assessed for either Operating or Reserve Fund expenses. The Condominium Property Act of Alberta mandates that the Board is responsible for assessing fees to run the Corporation – therefore the need for an Special Assessment is the Board’s legal mandate to determine. Often, the need for an Special Assessment is the result of years of deferred maintenance, projects such as window replacements that become necessary before the time outlined in the Reserve fund Study or emergencies such as a sewer collapse. Many times there is simply not enough money in the Reserve Fund to pay for these issues. An underfunded Reserve Fund is usually the result of Condominium fees not being raised to meet actual needs. These Boards forgot that they are the stewards of a multimillion dollar business and more importantly everyone’s home.
Many Board members have looked at me quizzically when I say they are running a multimillion dollar business. The value of the Condominium Corporation is determined by the insurance appraisal of the complex and the cost to run that Corporation is what sets the budget. The budget is the amount of money used to set the Condominium fees. When faced with large fee increases, many Owners have said that their fees have never gone up more than 5% year after year - if that. That is great, but what if costs are going up 15% or more? Eventually the feared term - Special Assessment - will raise its ugly head. Something was not being done and eventually it will have to be done. Pay now or pay a whole lot later is the choice.
Once the Board makes the decision that a Special Assessment is necessary, the fun begins. How is it going to be paid for, how are the Owners going to take the news, how do they tell the Owners? Other than an assessment for an emergency, most Special Assessment do not crop up overnight. A Special Assessment I was part of a few years ago took 2 years from the initial discussions to the assessing of the costs.
There were two information sessions with the Owners attended by the Board, the Corporation’s legal counsel, the engineer, the contractor and me. Full disclosure is the only way to approach these issues. The Special Assessment was very large – approximately $40,000 per unit – so the Owners were obviously vocal about opposing it. At the last information session the Corporation’s legal counsel told those assembled, in no uncertain terms, that there was no more time, the work had to be done. This was a 35 year old complex and their stucco siding had a myriad cracks and every time it rained you could clearly see where water was penetrating the surface. It had been doing so for many years. What had started as a window replacement project ended up being a complete building envelope replacement, new windows and patio doors, new awnings fnd back, new sidewalks and a complete re-grading of the complex including new window wells and new fences.
It ended up being a complete renovation of the complex.
As a Board, how do you go about assessing a Special Assessment? For discussion purposes, I will assume it is Reserve Fund expenses that have to be Special Assessed - building envelope, windows, doors, fences, pavement, sidewalks etc.
- Determine the scope of the work to be done
- Get advice from professionals - engineers, lawyers etc. and determine preliminary costs. Is there enough money in the Reserve Fund for these expenses? If there is not, at the Board level, discuss how this project will be funded. If a Special Assessment will be needed, put that in the minutes and make sure you include this information on the Information Statement - the need for an Special Assessment has been discussed but not yet assessed. It could still be a year or more before you have all the costs to determine the Special Assessment.
- Once you have preliminary costs, invite the Owners to an Information Night. Be prepared with all the documentation you have accumulated to that point to explain what is going to happen and that there is going to be a Special Assessment. Make sure you have the Corporation’s legal counsel in attendance to explain the legalities of the Board’s decision. Expect Owner resistance. Your lawyer can explain to the Owners that the Board is the body that makes these decisions, not the Owners. This can be a harsh reality for many Owners.
Once the Owners have been informed of the impending Special Assessment and the reasons for it, keep them informed. Put out periodic updates as to when and how the Special Assessment will take shape. While, as a Board, you are waiting for the tenders to come in from the contractors asked to bid on the project, decide whether you will borrow the money for the Special Assessment or have the Owners pay for it directly. Talk to the financial experts that deal with lending money to Corporations for this information. If you decide to assess the Owners directly, decide the payment terms. How far in advance will you give them before their first payment is due - the more time the better - I always try for 90 days. If the Special Assessment is for a large amount, hopefully the Owners have been talking to their banks or mortgage lenders so they are ready once the Special Assessment has been assessed.
Now most of the decisions have been made. The contractor has been chosen, the Special Assessment has been assessed, the Owners have been formally informed by letter outlining the costs and what they have to pay and when and the Board is waiting for the payment of the first installment. Let’s say the money is due over a year and in three installments. What happens if people don’t pay? Most people do pay and on time and many will pay the whole amount all at once even if there is an installment plan. I advise my Boards to deal with non-payment issues on a case by case basis. When contacted by Owners that cannot pay by the due date, I tell them to put their re-payment schedule in writing and I will present it to the Board. The Board will then look at this schedule and decide if it is acceptable.
Once I took a ten year re-payment plan to a Board and they said no. This was an unreasonable time frame. This Owner then paid within a reasonable time and of course with interest. Both the Condominium Property Act of Alberta and your Bylaws deal with the issue of interest. Boards cannot waive interest. They may not send you to collections - thereby having a caveat placed on your title - but you will be charged interest. I have had Owners call me very upset that they were not consulted about the Special Assessment and were going to sue the Board. I politely tell them to have their lawyer get in touch with me and I will put them in touch with the Corporation’s lawyer. I usually receive the money within a few days.
As complexes age, climate changes wreck havoc on building envelopes, people become more educated about Condominium living and Boards become more aware of their responsibilities. Special Assessments are becoming the reality of necessity. If you are an Owner, remember that Board members have to pay these Special Assessment as well and that if you are a Board member know that Owners telling you they cannot afford a Special Assessment is no reason to ignore the issues in front of you.
This article has been written by Helena R. Smith, ACCI.
Helena is a Condominium Manager and has worked with Mayfield Management Group Ltd. since 2003.