Special Assessment: A Case Study

Maintenance fee hikes! Violation letters and fines!
Termite Infestations! Roof leaks!

For most community association/condo residents, these words are almost guaranteed to bring out some anger and set off a barrage of phone calls to the board and community manager. However, there are two words that will truly raise the blood pressure of residents and incite irate owners to take action: “special assessment”! A community manager needs to understand the reasons for such an assessment, the different ways of handling special assessments, the relevant requirements in an association’s governing documents, and be ready to work with and hopefully calm the homeowners to help them understand why the assessment is needed.

In 2005, I had my first encounter with the special assessment process and all that it entailed. Although I have more than 12 years of experience as a community manager, it was a learning process. By sharing my experiences, perhaps others may learn some of the pitfalls to avoid as well as some strategies to help make the process less painful to all.

The property involved in this special assessment was a complex of 44, 4-
bedroom/2-½-bath units. The complex was built in 1974, so it was facing many of the problems associated with any older home. The complex was dealing with tree root damage associated with older trees, damaged sidewalks and parking area, expensive tree maintenance, the need for fence repairs, painting, termite contract renewal, and, most seriously, re-roofing.

The association recently had to pay for several large expenses involving major interior repairs to some units that had been damaged by roof leaks. These expenditures had put their reserves dangerously low. (Note: This association is a PUD in Hawaii and, as such, not required to have reserves. They did, however, follow their community manager’s suggestions and developed a reserve fund.) The board understood that the only way to prevent additional damage and continuing high repair bills was to re-roof. If they deferred re-roofing until reserves built up, more
units would experience leaks and water damage. To deal with the problem in a timely manner would mean a special assessment. The board had to make some difficult decisions regarding how to most wisely spend the association’s existing funds and ask the membership for more money.

The board members had several long meetings to discuss the issues. Finally, they determined that the special assessment was the only viable solution to the problem. Their first task was to determine how much they would need to 1) re-roof all units, 2) have some reserves for anticipated interior repairs resulting from the roof leaks and 3) treat the grounds for termites.

The community manager arranged for contractors and roofing companies to prepare estimates to submit to the board. With a specific dollar amount now in hand, the board instructed the community manager to convene a special meeting to vote on the special assessment and a loan for the amount needed. According to this association’s documents 67% of the owners must approve the assessment and loan. At the meeting, approval was secured.

Following this meeting, the board had to obtain at least 3 loan proposals from lending institutions. At the next regular meeting, the board selected a lender. The community manager was asked to submit necessary documents to the lender and proceed with the loan process. The board also selected the vendors for re-roofing and ground termite treatment. Once the loan process was completed, the owners were informed of the payment plan: owners would pay their normal monthly maintenance fee and an additional amount for the special assessment.

For this particular property and its situation, a loan and monthly payments was the best solution for their urgent problems. Other associations may find other
alternatives more suitable. For a small assessment amount, a lump sum payment may work, or owners may agree to make monthly payments over a specific time period. Typically, the board would provide payment options to the owners. Throughout this process the board and/or community manager may at some time find themselves dealing with angry owners who are already feeling the financial pinch. Paying maintenance fees may be difficult enough; adding an additional assessment on top of that is bound to frustrate some owners. There may be accusations of mismanagement of funds and poor decision-making. The board and community manager should work together to deal with such

To minimize confrontations or volatile reactions, boards should be very proactive in keeping owners current on fiscal matters. To that end, boards should actively encourage attendance at annual meetings as well as at regular meetings. They should also keep owners informed via newsletters of the cost of major repair projects and how vendors were selected. With such efforts, owners would be more in touch with the association’s fiscal issues and not be surprised should a special assessment be necessary.

Community managers need to encourage boards to actively pursue “transparency” on association matters. Owners also may need to be reminded that boards are given the task of making decisions that sometimes may be difficult, but board members are also owners and are always seeking solutions that are in the best interests of the whole community.

If all three components of an association (owners, board members and community manager) work together, the best results will be achieved for everyone. This was my first experience with the process of a special assessment and although stressful at times, it was a valuable learning experience. Hopefully this information will provide others with some insights into the process and how to make it run smoothly.

Susan Nichols-Afuso,
PCAM®, AMS®, CMCA®
Account Executive
Certified Management, Inc.
Honolulu, Hawaii