Condo Boards and Special Assessments
Concerns about unexpected repair or replacement costs can be much more significant in condominiums that have recently completed other large projects and depleted reserve funds. Sometimes a revised reserve fund study may require increased contributions which put additional burden on finances. Condominiums have two common ways to raise funds: Common Element Fees and Special Assessments. A third option is borrowing funds which will be covered in the next segment.
Common Element Fees are typically for funding the day-to-day operations, maintenance, and minor repairs as well as contributions to the reserve fund.
Special Assessments can be a good solution for special projects like upgrading common elements or when a large repair or replacement of the common elements is required ahead of reserve fund study schedule and current reserve funds are inadequate. However, frequent special assessments to keep the operating budget and resulting common element fees low is never a good idea. The annual budget and CE fees should be realistic to cover the actual annual operations and reserve fund contributions as well as a small buffer for variable expenses.
Be careful, thoughtful and realistic when considering a special assessment. Obviously if there is an emergency or high priority major repair or replacement required and additional funds are needed, the special assessment will need to be levied fairly quick. But for lower priority repairs, replacements or upgrades, take some additional time to plan. Determine the amount of funds required and when required. Don’t forget to add a buffer for large projects that are prone to unknown additional expenses. Try to provide the unit owners as much time to pay the special assessment as possible. Consider installments to lessen the burden on unit owners. If the replacement contract is going to be lengthy, there will likely be a payment schedule so the funds can be collected over more time.
Communication with unit owners is important. If the special assessment is for an upgrade to common elements or a large replacement project, consider a townhall meeting with the owners. Include information in newsletters and in unit owner online portals. Help the owners understand the details and the need for the project and the funds required in advance so that when the special assessment notice goes out it’s not coming as a huge surprise. Don’t forget to consider if the upgrade to common elements is considered a significant change which could require a vote of the owners in which case a Special General Meeting or AGM will need to take place.
If the financial impact will be stressful for your owners, consider borrowing the funds to reduce the impact and spread the expense over a longer term. More on that in the next segment.
Jeff Struewing – Shore To Slope Management Services Inc.