What are special assessments on a condo?

So you’re thinking about moving, and you feel like a condo would be a perfect fit for you. And why not? Condos don’t require outdoor maintenance, which is a huge plus for anyone who hates shovelling snow or mowing the lawn. Also, they’re often built in convenient locations, surrounded by amenities. But while real estate hopping and researching, you may have come across the phrase “condo special assessment,” sometimes called a special levy. Below, we explore what this term is and what it means to you.

What is a condo special assessment?

A condo special assessment is an additional charge that condo owners pay on top of their usual monthly condo fees. This charge is used to pay for sudden expenses or to make up for any shortages in the condo’s savings, known as the reserve fund. Special assessments become necessary when there isn’t enough money in this fund to cover unexpected events such as legal issues, repairs, or replacing parts of the condo’s common areas.

Condo boards (sometimes called homeowners associations or HOAs) which are groups of elected owners who manage the condo’s operations, have the authority to impose these special assessments. They can do this without getting permission from all the condo owners. This means that if the board decides extra money is needed for the building, they can add this extra fee to the regular costs that every owner already pays. This system ensures that the condo has the funds needed to maintain and repair shared spaces and keep the building in good condition.

Reasons for imposing special assessments

Special assessments might be charged to handle costs from unexpected expenses, such as litigation for lawsuits against the condominium association, a major piece of equipment needing replacement earlier than expected, or underbudgeting for major damage to the property, like a burst water pipe or severe storm that damaged several units in the condominium.

Let’s use the burst water pipe as an example. Say the burst pipe not only flooded several units but also spread to the building’s common areas, causing significant damage. The condo corporation will have a reserve fund for situations like this. But say they already had to cover something else earlier that year, leaving them with a low reserve fund. The water damage may cost more than what the condo association has left in the reserve fund.

Now, the condo board doesn’t have enough money to cover the damage, but it needs to act fast to fix it to prevent further damage. To make up the difference in costs, the condominium corporation may decide to charge a special assessment to all condo unit owners to pay for the emergency repairs.

Special assessments can also be used for capital upgrades or renovations that weren’t initially planned for in the reserve fund’s budget.

What is a reserve fund?

Reserve funds are what condo corporations use for major repairs and replacements of shared parts and assets. The Condo Act demands that corporations regularly check these funds through studies (reserve fund study) to ensure they have enough money to cover upcoming major repairs and replacements.

These studies, done by experts, only give an estimated cost of future repairs, much like how a homeowner might save money for home maintenance. These studies are crucial and must follow specific rules under Ontario’s Condominium Act and its regulations. Typically, a reserve fund study will include:

1. Physical analysis: This part checks the condition and expected life of the condo's components, such as when they were bought and how much it will cost to replace them.
2. Financial analysis: This evaluates how healthy the reserve fund is. It includes a current financial snapshot and a funding plan for at least the next 30 years.

What’s the difference between a condo special assessment and a reserve fund study?

A condo special assessment is a fee charged to handle immediate funding needs, often unexpectedly, while a reserve fund study is a planned evaluation to ensure the condo is saving adequately for future needs. The study helps in planning and ensuring that there is enough money being saved over time to handle these large expenses without the need for special assessments, while special assessments are levied to cover unexpected expenses or shortfalls in the reserve fund that cannot be covered by the regular budget.

How much does a condo owner pay for a special assessment?

The amount each condo owner owes is calculated using the same percentage that determines their regular condo fees. The condo board will inform you about how much you’ll need to pay for the special assessment.

Since fixing and maintaining buildings and litigation can be very costly, a special assessment can often be a large amount, ranging from thousands to tens of thousands of dollars, which is then divided between the condo units. The amount you’ll pay is often a significant expense, and it can quickly become a significant financial burden, which is why special assessment is often a dreaded term among most condo owners.

What if you don’t agree with the special assessment?

Sometimes, you might think the special assessment cost is too high, or the reserve fund isn’t being used right. If so, you can protest the special assessment by making a formal complaint. But you need a good reason for the condo board to take it seriously. It also helps if other condo residents support your complaint, as this can increase the chances of your request being approved.

Consulting with a lawyer who specializes in real estate or condo law can provide guidance on whether there is a legal basis to challenge the assessment. However, keep in mind that you usually can’t reject assessments for projects that are essential for the health and safety of residents.

Do condo owners have to pay the special assessment?

Yes. Special assessments are legal requirements for condo owners, and not paying them can lead to penalties, late fees, and legal issues. Condo associations must clearly and promptly inform owners about special assessments. This includes explaining why the assessment is needed, how much it is, how they calculated your unit’s fee, and when payment(s) is due. Some condo boards will require owners to pay a lump sum, while others may allow payments.

What happens if you don’t pay the special assessment?

If a condo owner doesn’t pay a special assessment, the consequences can be quite serious:

You’ll owe more

In addition to the base amount of the special assessment, late fees and interest can accumulate on the unpaid amount, increasing the total debt owed.

You may get a lien put on your unit

The condo corporation has the right to place a lien on the unit for unpaid special assessments. This lien includes the amount owed, plus interest and any reasonable legal fees incurred by the corporation to recover the debt.

You may face legal action

If the payment remains unpaid, the condo corporation can enforce the lien by taking legal action. This could involve suing the owner in court or proceeding with the sale of the unit to recover the owed funds.

Your credit score may be affected

Failure to pay a special assessment, like any unpaid debt, can negatively impact the owner’s credit score once it goes into collections or results in legal judgments.

What is a pending special assessment?

A pending special assessment is an extra fee that the condo board has decided on but hasn’t yet collected from the condo owners. This fee is for covering big, unexpected, or planned costs that aren’t included in the regular budget or savings fund. These costs might be for fixing, replacing, or improving shared spaces or the building itself.

The pending part means that the board has approved this fee and told the owners about it, but they haven’t started collecting it yet. This gives owners time to get ready to pay this extra charge.

Who pays for a pending special assessment on a condo unit for sale?

If you’re thinking about buying a condo, you need to know about any pending special assessments because you’ll have to pay these costs once you own the unit. Therefore, when a condo unit is up for sale, the condo board must inform all potential buyers if it has a pending special levy or special assessment.

The board can let buyers know by indicating the special assessment on the unit’s resale certificate or status certificate, which should also explain how much the special assessment is, why it’s needed, and how much of it the condo unit owner will be required to pay.

If the board fails to disclose to the buyer the pending special assessment before closing the sale of the condo unit, the board may be forced to pay for that share of the special assessment itself.

Tips to help condo owners avoid facing special assessments

Condo owners usually can’t avoid paying a special assessment completely since these fees are legal requirements when approved by the board. However, there are some ways to reduce the chances or the impact of these assessments:

1. Participate in meetings

By attending board meetings, you can stay up-to-date on the condo’s finances and upcoming decisions. This involvement also lets you share your ideas or concerns before any assessments are finalized.

2. Push for regular maintenance

Encouraging regular upkeep and timely repairs of the condo can prevent the need for sudden, expensive fixes that might result in special assessments. If everything is kept in good condition, there’s less chance of unexpected costs.

3. Stay informed about the reserve fund

Getting involved in discussions about the condo’s reserve fund can help ensure it has enough money, which might reduce the need for special assessments. Don’t be afraid to ask questions and make sure this fund is being handled wisely.

4. Encourage good financial management

Support the board in establishing a realistic budget and an emergency fund for unforeseen expenses. Planning ahead financially can prevent the need for sudden charges to cover shortages.

5. Seek legal advice

If a special assessment seems unreasonable or not correctly applied, consult with a lawyer who specializes in real estate or condo law. A lawyer can offer advice on whether there’s a legal ground to challenge the assessment.

6. Build community support

Working with other owners can be powerful. If many owners share your concerns, you can collectively propose changes or express disapproval of proposed assessments, which might influence the board’s decisions.

Conclusion

Special assessments are unavoidable when you own a condo and are needed for important repairs that benefit everyone. While no one likes these extra costs, being prepared financially and understanding why they’re needed can make them easier to handle. Getting involved in your condo association and asking for clear explanations helps ensure these charges are fair. Thinking of these fees as investments in your home and community can also make them feel more acceptable and beneficial.

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FAQs for what are special assessments on a condo

What is an example of a special assessment?

An example of a special assessment is when a condo association charges extra fees to fix major damage after a storm. Suppose the storm damages the roof and the elevator in your condo building, and the repair costs are higher than what the reserve fund can cover. The condo association might ask each condo owner to pay extra that month to help cover the repair costs. This extra fee is the special assessment.

What is the meaning of special assessment?

A special assessment is an extra fee that condo owners pay in addition to their regular monthly fees. This fee covers unexpected expenses that the regular budget can’t cover, like sudden repairs or legal costs.

Are special assessments tax-deductible in Canada?

No. In Canada, special assessments are not tax-deductible. You cannot claim them on your taxes like you might with property taxes or mortgage interest. This is because special assessments are considered personal expenses. They are fees charged to cover specific costs in your condo building and are not seen as directly reducing your taxable income.

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