Special Assessments Are Unavoidable but Trustees Can Reduce the Pain for Owners and for Themselves

Published on: September 22, 2005

Special assessment. The mere mention of the term infuriates condominium owners and terrifies condominium trustees, who duck and cover instinctively whenever the topic comes up.

In an ideal world, special assessments – levied to finance major and unanticipated expenditures – would never be required, because community associations would always have the funds they needed, either in their operating budgets or their reserves, to cover the costs. But the world, as you have no doubt noted, is not ideal, and even the best managed communities, overseen by the most conscientious trustees, sometimes encounter problems they didn’t expect and couldn’t predict. An unusually severe winter can bury the snow removal budget; a roof that was expected to last for 25 years may have to be replaced much sooner, because it is damaged by storms or falling trees, or simply because it ages more rapidly than projected; siding may prove to be less durable than the contractor suggested it would be.

Community associations establish reserves – or should establish them – to finance the inevitable repair and replacement of major condominium components, which, like residents of the communities, will age over time. Reserve studies, which project how much money will be needed when and for what, estimate the life expectancies of roofs, siding, swimming pools, and the like, but they can’t guarantee that everything will age on schedule. So it is not unlikely that a board will find itself facing an essential expenditure that exceeds the reserves available to pay it.

An Unhappy Discovery

This is never a happy discovery. Given the option, most condominium trustees would probably prefer a month-long root canal to the task of announcing a special assessment to owners. The root canal will be painful, but at least the dentist won’t be shouting insults at the trustees while performing the procedure.

Condominium owners, on the other hand, often scream, and worse, when told that they must contribute a sizable sum to cover their share of a special assessment. Some owners will flatly refuse to pay it, arguing that the expenditure isn’t necessary, the assessment is illegal, or the board’s decision was ill-considered, and insisting that they should not have to finance a project they oppose.

These protests will be heated and often heartfelt, but without any legal basis. The courts in Massachusetts and most states have held consistently that special assessments, like the monthly common area fees, are the legal equivalent of taxes: Owners have the right to challenge the levies, but they must pay them first. There is no legal right for owners to withhold payments with which they disagree.

The notice announcing the special assessment should remind owners of their legal obligation to pay it and of the board’s authority to file a lien and assess collection costs against owners who fail to do so.

Managing the Process

Special assessments will never be popular with owners, but boards may be able to take some steps to make the payments less onerous and the assessment process less antagonistic than it often tends to be.

One way to ease the financial strain on owners is by obtaining a bank loan to finance the association’s expenditure. This wasn’t an option a decade ago, but banks have become more familiar with condominiums and more comfortable with loans secured by the association’s monthly fees and its reserves. An association loan gives owners the option of paying their share of the assessment in a lump sum or in installments matching the term of the loan. Lump sum payments will reduce the amount the association has to borrow, lowering the interest costs as well. Owners able or willing to pay up front obviously should not have to pay a share of the interest on the association’s loan.

Handling Special Needs

Boards also can deal sensitively with owners for whom the assessment represents a serious financial hardship. Trustees must treat all owners equitably; they can’t require the majority of owners, who make their payments, to subsidize those who don’t. But the board also has the discretion to handle owners with special problems on a case-by-case basis, providing longer-payment periods, temporary deferments, or other concessions, where those arrangements will not have an adverse impact on the community.

Some boards approach an assessment like a military action, assuming that a quick strike, leaving owners little time to react and object, is best. The opposite is true. Owners are likely to be angrier, more resistant, and more suspicious if they feel “blind-sided” by the assessment. The more advance notice they get, the better. If time allows, the board should hold a special owners’ meeting before voting on the assessment, to explain why it is needed and to solicit suggestions for the ways of dealing with the community’s financial crisis. The engineers or contractors recommending the work should attend the meeting to explain their recommendations and to answer owners’ questions. The presence of these experts will take some of the political heat off the board — let the engineers explain that the roof will collapse if it isn’t replaced. This will also help convey the message that the board’s decision was well-thought-out and based on the best advice available.

If a preliminary meeting is not possible – because the funds are needed immediately to make emergency repairs – the notice announcing the assessment should carefully explain why the funds are needed, advise owners of their right to review all of the relevant documents, and encourage them to contact board members if they have any questions.

In the notice and in the advance meeting, if there is one, trustees should make sure to underscore one crucial point owners often overlook: The trustees are owners, too, and have the same obligation to pay the assessment. They would be unlikely to approve the levy if it weren’t essential and unavoidable.