How can a buyer protect himself for a special assessment and how to handle a sale of a condo with a special assessment in place?
Every condo corporation is obligated to get a reserve fund study done every 5 years. This study must ensure that the funds are sufficient for future maintenance needs. However, unless you keep renting, there is never a 100% guarantee you will avoid a special assessment. It is one risk of ownership.
When you are interested in buying a condo, there are a few precautions you can take:
- Hire a realtor who is a Certified Condominium Specialist. He/she has that special extra education.
- The realtor should advise you to hire a condominium document review specialist. In Calgary, there are several of these specialists who understand the financials of a condo building. They will read over the minutes provided by the seller, and try to draw a conclusion on the financial state of the condo corporation you will buy into.
- Put extra conditions in the contract when there is an issue that you, as the buyer, want to verify.
- Really not recommended, but if you decide to do the document review on your own, make sure you have all the necessary documents in place. The contract between buyer and seller should state the complete list that a seller must provide.
- Suggest your realtor start door knocking in the building. If you only get to talk to a few condo owners, you may just get that piece of information that is helpful to you.
How to handle a sale of a condominium with a special assessment in place?
When you, as a buyer, get interested in a condo unit and find out that a special assessment is hovering over it, there are several options. The first option is to walk away. However, it is really important to understand the cost and impact of the defect. As mentioned in Special Assessments within a condo corporation, not all assessments are big numbers for big defects.[pullquote align=”right” cite=”” link=”” color=”” class=”” size=””]Another option is working with a hold-back of a certain amount on the sale price.[/pullquote]
Another option is working with a hold-back of a certain amount on the sale price. If the special assessment is known and presented by the board, then the seller of the condo is responsible for payment. If a special assessment is indicated, but until now the impact and the amount are unknown, you may consider asking for a certain dollar amount in a trust account until the special assessment is approved and presented. Many owners who are motivated to sell a condo unit may be very willing to do this. One small risk is when the amount set aside does not cover the eventual conclusive amount. Another risk for the buyer is the fact that you may never know what else may come up in the near future, especially when the assessment was caused by poor workmanship and bad quality building construction.
Again, there is no way to 100% protect yourself against a special assessment. But, even when you buy a house, you may run into large, unexpected costs.
What does the purchase contract state about special assessments?