Special Assessment Condo

It’s a very unfortunate development here in Calgary, but more often we run into condo buildings with special assessments. Old buildings, and even newer buildings, are potentially subject to special assessments. In this article, we will try to pass on more information on this possible nightmare for every condo owner.

What is a special assessment?

Just a quick explanation about special assessments. When you buy a condo, you buy a unit, but you also become part owner of an entire building. Simply put, a condo has a shared roof, a shared heating and water system, possibly an elevator and a parkade, all of which need to be maintained. Thus, you, as a condo owner, are responsible for the shared upkeep of the building as a whole.

All unit owners pay condo fees, and a portion of those fees go into a reserved fund. This fund is basically the savings account for the condo corporation and is to cover bigger and /or unexpected future expenses and repairs.

If a ticket item needs repairs or a replacement, and there is not enough money in the reserve fund, you may receive notice of a special assessment, requiring you to pay the difference needed from your own pocket. This special assessment could range from a few hundred dollars to thousands, even tens of thousands, of dollars.

Reasons for a special assessment

Special assessments are most often a result of not having enough condo fees saved up for big ticket items. Such big ticket items could be such things as window replacements, roof repairs or bursting pipes in winter. These special assessments are possibly due to bad board decisions such as not setting the condo fees high enough.

Special assessments could also be caused by poor workmanship in the first place. This is something we are witnessing more and more often. Such things could be a builder using cheap wax rings under toilets, causing leakage in an entire building. Such finds often lead to concerns about other possible flaws in the building’s construction.

In such cases, you may be able to go after the builder for (some) compensation. However, that can be a lengthy process involving a long legal battle. And, in the meantime, the repairs must still be made and paid for.

Can you avoid a special assessment?

The short answer is that unless you keep renting, there is never a 100% guarantee you will avoid a special assessment. It is one of a risk of ownership.

A list of all buildings undergoing special assessments is not available in Calgary. Any known assessments must be disclosed by the seller. These special assessments will be in the disclosure statement that is part of the mandatory documents a seller must provide to to the buyer, along with all other condo documents. Condo documents contain all the bylaws, minutes and financials of the condo corporation.

Every condo corporation is obligated to get a reserve fund study done every 5 years. This study is to ensure that the funds are sufficient for future maintenance needs. Also, the minutes, which should cover at least the previous 12 months, could reveal important information about issues that were discussed which could potentially become special assessments.

What does the purchase contract say about special assessments?

The purchase contract is between buyer and seller and states the following about special assessments:

”Unless the Buyer and the Seller otherwise agree in writing, then regardless of when a special assessment states that it is due and payable: (a) the Seller is responsible for special assessments that are implemented by the passing of a resolution on or before 12 noon on the Completion Day; and (b) the Buyer is responsible for special assessments that are implemented by the passing of a resolution after 12 noon on the Completion Day.”

If the special assessment is known and presented by the board, then the seller of the condo is responsible for payment. So, as a condo buyer, do your research about the condo corporation you are buying into.

Tips to buying a condo

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 all the documents, including minutes, bylaws and financials and draw a conclusion on the financial state of the condo corporation you are buying into.
• Read the entire package of condo documents yourself, as well, including the minutes and the bylaws. This will help you ask the right questions of the condo document review specialist.
• Put extra conditions in the contract when there is an issue that you, as the buyer, want to verify. Keep digging until you are satisfied with the answers.
• Absolutely 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.
• Request of your realtor that together you do some old fashioned doorknocking in the building. If you only get to talk to a few condo owners, you may just get that piece of information or insight that is helpful to you.
• Once you are an owner of a condo, join the board. Get involved in any decisions and discussions about the biggest investment of your life. And attend every AGM.

Buying a condo 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. Not all assessments are big numbers for big defects. Try to understand the issue, but also try to learn potential future issues that may become a result of the current problem. Also, learn more about the history of the building. What has come to surface in the past, and how could this affect the future of this building?

Work with a holdback when a special assessment is in place

A second option is working with a holdback of a certain dollar amount on the sale price. 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 with your lawyer 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 with a holdback 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 comes up in the near future. This is a serious concern when the assessment was caused by poor workmanship and bad quality building construction.

How are special assessments calculated?

The total cost of the repairs will be divided by all unit owners and calculated by the unit factor. Every condo corporation in Alberta gets 10,000 unit factors, which get divided by the square footage of each unit. The owner of a larger condo pays more monthly condo fees than the owner of a smaller unit, and therefore will pay a higher part of the special assessment.

Special assessments must pass a resolution to take effect. Once it passed, the unit owners will be informed of the repairs needed, and the time by which repairs must be paid.

What if you can’t pay your special assessment?

Ultimately, a condo owner does not have any say over a special assessment. It must be paid in full, or the board can take some action such as charging interest or file a caveat against the title of the unit. As a last resort, a foreclosure can be the result of this.

If you can’t pay the special assessment, ask for potential options of a loan via the condo corporation. Or perhaps consult with your mortgage provider to pay for the outstanding amount.

Although less common, one option for a board is to choose for a loan instead of a full payment by a particular date. There are condo complexes in Calgary with a monthly loan on top of the monthly condo fees. When selling a unit with this agreement, it will be disclosed in the listing. These loans can carry a number of years, and the buyer must assume this monthly ‘double’ payment. In return, the unit will be sold for a lower purchase price to offset these monthly loan payments.

Again, there is no way to 100% protect yourself against a special assessment.

Does condo insurance cover special assessments?

We are not insurance agents and do not regulate special assessments. But insurance policies typically only cover special assessments due to unforeseen circumstances like a natural disaster. They do not cover special assessments for general repair of an aging building. But do your own research and talk to your insurance agent about your options. Or better, contact several insurance companies for more information. The following snippets have been taken from a few websites:

“Basic condo insurance does not typically cover special assessments. However, in some policies, special assessment coverage is included for “named perils.” For example, if a fire damaged your condominium, including common areas, the unit owners in the association may receive a special assessment notice to cover some of the costs of the repairs. Depending on the specifics of your condo insurance policy, you may have some coverage that would help you cover your portion of the assessment.

“To protect yourself, you should make sure that your condominium insurance in Calgary includes special assessment coverage and that you understand the limits of your coverage. Some specific types of special assessments may not be included in your policy while others are. By and large, condominium insurance protects you from unanticipated expenses arising from the majority of special assessments, and these expenses can be very costly”

“You will have to separately purchase special assessment insurance, also known as “title insurance,” which covers condominium assessments that were unknown at the time of purchase.”

Long story short, there is such a thing as insurance against special assessments. However, these insurance documents will have lots of fine print to understand about the cause of the special assessment, the deductible etc. Again, do your own research and talk to your insurance agent about your options!

A few resources when dealing with a special assessment

Lastly a few resources in Alberta that may be able to help you further.

• Condo Law for Albertans. This is a non-profit organization to inform condo owners about the ins and outs of condo living, including the (legal) rights and responsibilities of condo owners.
• CCI, the Canadian Condominium Institute, the Alberta chapter This is also a non-profit organization and provides lots of information for condo owners.
• COCOA Condo Owners Council of Alberta is another non profit organization focused on education and advocating for condo owners.
• If you need a lawyer, a good place to start is at the Law Society . You can submit your legal issue, and the society will provide you with 3 lawyers who may be more specialized in issues such as special assessments. You can speak with up to 3 lawyers for 30 minutes for free. There are a few lawyers in Calgary who are specialized in the condominium act.
• The full Condominium Property Act from the King’s Printer can be found here.

 

 

Please note: The above is general information and not considered legal advice. We do our best to write informative articles about real estate in Calgary, Alberta. If you have any questions or concerns about our comments, please feel free to contact us or speak to your legal advisor.