Condo special assessments can be very useful to an association in a financial bind. They inject instant cash flow into the budget, but they can also set off unit owners and cause distrust in the community. Board members must be careful when levying special assessments. Understanding how to avoid them and the limitations that come with them is crucial.
What are Condo Special Assessments?
A condominium special assessment is an additional fee that a condo association charges to unit owners on top of regular dues. These assessments typically cover large repairs, upgrades, or emergency costs when the budget or reserves fail to do so. Special assessments are generally one-time payments, but some associations collect the sum over several months instead of in a single lump.
Condo Special Assessment vs Condo Fees
While both are sources of revenue, a special assessment differs from condo fees. Also known as owner dues, condo fees are collected on a regular basis. Owners pay these monthly, quarterly, or annually. On the other hand, special assessments are rare, only coming up when there is a need for them.
They also differ in what they cover. Regular dues pay for operating expenses, including insurance, maintenance, and management fees. A condo assessment can also pay for these if the operating budget experiences a shortfall. In general, special assessments cover gaps in the budget, emergency expenses, and unanticipated costs.
The Importance of Preparing for Big Repairs
Condominiums are structured in a way that owners share multiple elements. These include walls, roofs, hallways, plumbing systems, and electrical systems. This kind of setup means that issues or damages often affect more than one unit. Even if a problem starts out in a single unit, it can quickly spread to others when left unaddressed.
Pests are a common example. Cockroaches may invade one unit at first, but they rarely stay there. These pesky bugs can travel through holes and gaps. Before long, the entire condo has an infestation.
A plumbing issue can also halt daily life. Since units share plumbing systems, damage to one valve or pipe can stop water from flowing to several units. Boards would have a surge of complaints in a single afternoon.
This is where proper budgeting and reserve planning come in. Boards can prepare for big repairs and improvements by collecting sufficient dues and setting aside savings. Failure to budget or plan properly can result in a special assessment in condo communities.
Through effective preparations, boards can simply use existing funds to cover the cost of repairs. But when funds are short, condo boards would have to turn to the unit owners once again, levying special assessments on top of regular dues. This creates a financial burden on the owners, which is never a popular outcome.
Who Pays Condo Special Assessments?
In a condominium, unit owners shoulder the cost of special assessments. The board typically calculates how much the association needs in extra funds before dividing it among the owners. Some associations divide the sum equally, while others use a percentage based on square footage.
No one is exempt from paying condo special assessments. Even the board members themselves must pay this added fee. Board members don’t receive compensation for their services, nor do they get any fees waived in exchange.
Unit owners are legally obligated to pay special assessments. They agree to fulfill this obligation when they first buy a unit in the condo community. In Illinois, 765 ILCS 605/18 grants condominiums the authority to levy special assessments when necessary.
Consequences can follow when an owner refuses or fails to pay their special assessment. These include late fees, legal action, liens, and even foreclosure.
Is There a Limit on Condo Special Assessments in Illinois?
Illinois currently does not cap special assessments for condominiums. Boards can generally levy special assessments at their discretion, as they understand the community’s needs better. That said, condo special assessment law does protect against unreasonably high sums.
According to 765 ILCS 605/18, unit owners can petition against assessments that go over 115% of the prior year’s assessments. At a meeting, owners can vote to deny the assessment, but the vote must be a majority.
Other than that, condo boards must check their governing documents. Some CC&Rs and bylaws impose stricter limits on special assessments, especially if the amount is too high.
Can a Condo Levy Special Assessments Without a Vote?
In general, the condo board can levy special assessments without obtaining a vote from the membership. Special assessments can pass even with a simple board vote or resolution. This prevents delays in securing funds, which can be detrimental to the association if the need is urgent.
That said, state laws and the governing documents may require a vote for special assessments that exceed a certain threshold. In Illinois, 765 ILCS 605/18 allows unit owners to petition against assessments that exceed 115% of the assessments from the previous year. Unit owners that hold at least 20% of the total votes must submit this written petition within 21 days of the decision to levy special assessments.
From there, the board must call a meeting within 30 days after receiving the petition. If the majority votes against the assessment, it doesn’t pass. Otherwise, the special assessment goes through automatically.
Emergency assessments, on the other hand, do not require a vote. The board is free to levy special assessments for emergencies without owner approval. Emergencies cover any immediate threat to the health and safety or owners as well as to the structural integrity of common elements.
Other Condo Special Assessment Rules
Special assessments may come in handy for emergencies or unanticipated costs, but boards can’t just collect them without following proper procedures. Generally, boards must first provide notice, decide in an open meeting, and ensure that the assessment is justified.
Notice Requirement
Condo boards must notify owners of the special assessment before collection. This notice should include pertinent details, such as the sum, the purpose, and the payment timeline. Exact notice periods will depend on the governing documents, but most require at least 10 to 30 days’ written notice.
Open Meeting Requirement
Most governing documents require the association to pass the special assessment at a properly noticed open board meeting. This gives unit owners an opportunity to provide feedback and ask questions about the assessment. Such a practice also promotes transparency and accountability.
Justification and Proper Use
Condo special assessments must have a justified cause. Additionally, the board should only use the funds for the intended purpose, not anything else. Board members must explain the purpose of this assessment at an open meeting. When owners understand the why behind the decision, they are less likely to fight the assessment.
Be Wary of Too Frequent Condo Special Assessments
If the condo board plans the budget and reserves effectively, there should be no need for special assessments. It’s best to include a contingency fund and cushion some expense items to avoid additional fees.
Still, no board is perfect. Board members might underestimate some costs, rely on outdated reserve studies, or fail to account for delinquencies. This can result in a budget deficit, which would require the board to impose special assessments. Emergency situations can also cause this need.
That said, owners should watch out for special assessments that happen too frequently. This can signal poor financial management, underfunded reserves, and even fraud. In such cases, owners should investigate further by inspecting financial records and asking the board questions directly.
What are Special Assessments on a Condo? Answered!
Condo associations rely on consistent funding to operate smoothly. While dues should cover the association’s needs, there may come a time when condo special assessments become necessary. Special assessments are not inherently bad, but if they are too high or too frequent, they can indicate more serious underlying problems.
Forth Group provides HOA financial management services to communities in Chicago and the surrounding areas. Call us today at (312) 379-0400 or contact us online to get started!
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