Boards of homeowner associations (HOAs) and condominium associations occasionally face a tough question about whether to levy a special assessment or not. Special assessments are meant to cover unexpected or major expenses. If they are handled wisely, they help preserve the community’s financial health. However, if they are not handled properly, it can result in confusion, distrust and even legal issues. Let’s understand when you must levy a special assessment and how you must implement it.
What is a Special Assessment
Special assessments are used to cover expenses that are beyond what the regular operating budget and reserve funds can cover. These expenses can help cover storm damage repairs, structural concerns and major capital improvements like roof replacements, etc. While regular assessments are planned and budgeted annually, special assessments arise only when there are unplanned or urgent needs. As these assessments directly impact the finances of homeowners, boards must implement them only when it’s absolutely necessary.
Step 1: Assess the Urgency of the Expense
Before implementing a special assessment, boards must determine how critical the expense is. Routine maintenance is usually covered from the operating budget or reserve funds. Special assessments are mainly for emergencies or large-scale projects that can’t be delayed. It’s important to estimate the total cost of the project before levying the assessment. If the funding is not needed immediately and can be included in the next budget cycle, a special assessment must not be implemented.
Step 2: Review Governing Documents
Before taking an action, the board must review the community’s governing documents to check whether a special assessment is permitted and under what conditions. Often, documents require approval from specific members or have voting requirements. By consulting with legal counsel and reviewing the documents, you can ensure all actions are done in compliance with state and local laws.
Step 3: Explore Other Funding Alternatives
Special assessments must never be the first choice, the board should consider other available funding sources as well. If reserve funds are maintained properly, they may help cover some part of the expense. The project can also be completed in phases over time to manage costs better. Boards can also consider taking a loan to complete the project. By following a mixed approach of using reserve funds and loan money, boards can reduce the financial pressure considerably.
Step 4: Evaluate Homeowner Impact and Affordability
If a board feels that a special assessment is necessary, it should analyze in detail how the costs will affect homeowners and how much each owner will have to pay according to the governing documents. Typically, the amount varies depending on the unit size and ownership percentage. Boards can also offer flexible payment methods to homeowners to make the process more manageable for them. It’s also vital to show empathy to homeowners who are facing financial hardships and want to pay over several months instead of paying the full amount in one go.
Step 5: Communicate Clearly and Early
Transparent communication is the key to a successful special assessment. Boards should discuss these things in an open meeting by providing supporting reports. This can help make the decision-making process clearer for the homeowners. It’s essential to send written notices in advance and patiently answer the questions that owners have, as this helps maintain trust and credibility.
Step 6: Formalize, Implement and Report
Once all the necessary approvals have been obtained, the board should formalize the special assessment with a clear resolution outlining the purpose, total amount, payment terms and collection procedures of the assessment. When the implementation is done, the board should keep track of the expenses and ensure that transparency is maintained throughout the project. After the project is completed, it’s important to provide a detailed report to the homeowners, covering the summary of actual project costs.
Contact Compass Rose Management
If you are still confused about whether you must levy a special assessment or not, partnering with experienced professionals like Compass Rose Management can help. We offer services like Community Association Management in Cape Coral, FL and can provide expert financial guidance and communication strategies to help you deal with complex funding decisions. Call us today to strengthen your community’s financial future and ensure its long-term stability.
