According to one study, approximately 70% of all Associations are underfunded. This means that odds are you live in an Association where there is at least the threat of a Condo Association Special Assessment. If that’s the case, hopefully your Association is taking proactive steps to get control of your financial situation to stave off a Condo Association Special Assessment. The reality is that sometimes you’ve got no choice but to go down the Special Assessment route. This miniseries will be dedicated to guiding Boards and Management step by step on how to go about a Special Assessment in the most effective and fair way. This first article is an overview of the process, and future articles will dive into each in greater detail.
Going through a Special Assessment was the toughest thing I’ve ever done as a Board member. Every step was fraught with stress, angst, and rage. We had no choice – our building was literally falling apart – and I think we handled it well. That said, it was no fun, but I still shudder to think of the steps we would have taken if we had failed.
The key to avoiding a Condo Association Special Assessment is solid financial backing and an effective reserve study. You may fall behind on reserves for a number of reasons – you might have historical poor financial planning that is catching up to your Association, multiple major systems may fail at once, or you may be a new Association that hasn’t had time to accumulate the proper reserves. Ultimately the way you know if you need a Special Assessment is if a major life safety system is in danger of imminent failure and you lack the resources to repair that system. If that’s the case, you’ll go through a series of inspections, designs, peer reviews and bids to move forward with replacement.
Financing your repairs can be done through a Special Assessment, a loan, or a combination of the two. A loan may buy you some time, but it will ultimately saddle the Association with longer-term debt, which will raise Condo fees (to service the debt) and potentially price your building’s Condo fees higher than other comparable Associations, which is bad. A Condo Association Special Assessment on its own might inflict too much of a financial burden on your Owners, raising your risk of delinquency. A combination of the two might be the classic Goldilocks and the Three Bears “just right” approach, but it really depends on the situation. You’ll want to review all of these options thoroughly, working with a qualified financial advisor and legal counsel. Make sure your Owners can afford the plan you lay out, and make sure you are shaping up a plan that is legally sound.
Chances are that your Owners are not avid readers of this blog, and so they aren’t following my tips to being a good Owner. This means they have no idea that you’re about to drop on their laps a large bill that they legally MUST pay with a Special Assessment.
Your Owners are going to be upset and angry when they learn of this.
Your job is to develop a robust communications plan to explain to them the situation, explain all of the steps you as a Board have taken, and explain why it is a GOOD IDEA for them to hand over the money. This step is all about building the right communications plan to inform your Owners.
In many cases, the amount of money required for your Condo Association Special Assessment will require a vote of your Owners. This means that you need to CONVINCE usually a two-thirds majority they need to fork over the money – and if they don’t, your building continues to degrade and the costs go up. The stakes in this case are very high. To be successful, use a combination of written materials, town hall meetings, and even door-to-door outreach. Congratulations, you’re now a politician who needs to run a campaign!
If you’re an Owner in all of this, what do you do? Your first instinct is most likely going to be to fight and resist. Under some circumstances, this may make sense. But in most cases, your Board will have done their homework and they have truly identified the best path forward.
Thus, your job is going to be to get educated on the Condo Association Special Assessment. You need to learn everything you can about the work being done, where your money is going, and how that money will be managed. If you’ve not been involved in your Association, perhaps now is the time for a tune-up and thinking about getting involved in the future.
If your vote fails, you have a few options. Depending on the urgency of the work and the results of the vote, you can try to tweak your proposal and put it out for a second vote. If the work is urgent and qualifies as an emergency, depending on your Bylaws and state laws, you may be able to initiate a unilateral assessment under emergency powers, but such a move may be legally contested. Finally, you also could consider aggressively increasing Condo fees and taking out a large loan, but this may have long-term implications. Regardless, you’ll have some tough decisions ahead.
Step 7: Project Initiation
The good news is I’m already writing another series on how to manage a major project. If you are successful in raising the funds, you can read those articles for additional inspiration.
Carrying out a Condo Association Special Assessment in a manner that is humane to your Owners but also responsible to the Association is one of the toughest experiences a Board will go through. However, with planning and diligence – which is your job as a Board and as Management – you can minimize the pain and get your Association back on the right track. Throughout future installments of this series, I’ll walk you through each individual step and help you make the most of a tough situation.