Assessments

Bill Clark

CCI Golden Horseshoe Communications Committee

As a Condominium Board, you hope an assessment is never necessary, BUT, unfortunately, sometimes the unavoidable happens – and hopefully it is caused by bad luck and not bad management. Your condo may experience costly unexpected repairs not covered by your insurance or a large increase in an expense item such as insurance. These costs will drain your operational and/or your reserve funds drastically, which will create future financial problems. So, after looking at all options, the Board has decided that an assessment is the only viable solution.

This article will take a look at assessments through four different perspectives.

A Homeowner’s Perspective

The homeowner receives a letter indicating that a special assessment has been levied to cover unanticipated expenses during the current fiscal year. This is the first time the owners are hearing this and, quite frankly, they are upset AND they have some questions: • Why is this the first time that homeowners have heard about the assessment? Why wasn’t there a meeting called to discuss this with the homeowners? Why is there such a sizeable shortfall in the budget or reserve? Is it the investments? Have we suffered an unexpected lower rate of return? Did the Board make poor investment decisions or has there been theft?

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What steps are being taken to confirm the deficit and is the amount tabled accurate? What happens if a resident cannot pay? Can the Board put a lien on that unit? Is there a payment plan being proposed or is it necessary to pay it all at once? Can we call a meeting and replace the Board or at least stop the assessment? Was legal advice obtained by the Board? Is there a possibility that this situation could reoccur?

A Lawyer’s Perspective

An assessment in the context of condominiums means an obligation to pay money.

Both the Condominium Act, 1998 (The Act) and the specific condominium’s Declaration “place upon the directors the obligation to operate and to maintain the property. They empower the directors to prepare budgets and to make levies in order to raise the funds required to finance the maintenance and operation that the Board is statutorily obligated to carry out.”

Special or extraordinary assessments, by contrast, occur where unit owners are asked to pay an amount over and above the regular monthly payment. Direction to pay this amount is determined by the Board, and it can range from the payment of several installments over time or in one lump sum on short notice. Not surprisingly, special or extraordinary assessments are often viewed negatively.

In an ideal world, a crystal ball could predict the future so that all condominiums would have the funds available for all their needs. So, if new funds are required, it must be through some fault of the Board. However, recognizing the reality of our world sans crystal ball accuracy, we need to assume that if a Condominium Corporation establishes realistic operating and reserve fund budgets, over time, funding should be available, BUT shortfalls in both the annual budget and reserve fund can be encountered, leaving the Corporation with only two options to raise funds: 1) To borrow monies (requiring that home owners vote to approve an authorizing by-law), or 2) Levy a special or extraordinary assessment.

The Act does not specifically address extraordinary assessments. Authority for same is derived from a condominium corporation’s By-Laws. Typical wording regarding extraordinary and special

assessments is as follows:

In addition to the days annual assessment (maintenance fees), any expenditure not contemplated in the budget and for which the Board shall or does not have sufficient funds may be assessed at any time during the year by the Board serving notices of such further assessment on all Owners as an additional common expense. The notice is sent to all owners and mortgagees entered on the record and shall include a written statement setting out the reasons for the extraordinary assessment and copies of the budget on which such extraordinary assessment is based. Extraordinary assessments shall be payable by each Owner within ten days after the delivery of notice thereof to such Owner, unless a further period of time has been determined by resolution of the Board and set out in such notice.

A Property Manager’s Perspective

Property Managers play a large part in any assessment procedure. A key element to their involvement is communication. Circumstances leading to the decision to levy an assessment did not happen overnight. It is recommended that the Board communicate to the owners as soon as they become aware that an assessment MAY BE a future possibility.

To start the whole process, the Property Manager has to ensure that the Board has thoroughly examined their finances: How much money the Corporation has (assests); How much money the Corporation owes; • How much is left over following the report period (equity);

By presenting these details on a monthly basis, there should never be a “sudden” need for a special assessment,

“It is recommended that the Board communicate to the owners as soon as they become aware that an assessment MAY BE a future possibility. ”

except possibly in the case of an unexpected emergency event.

The Property Manager is responsible for producing accurate statements and aiding the Board in making good fiscal decisions. Also, Property Managers can present other ways of financing the shortfall: • Increase in Condo fees – may be only temporary but could affect resale values of houses if too drastic Reducing services, e.g. cancelling bulk television fees Find new sources of income, e.g. looking at assets of Condominium (“is there anything to sell/lease?) • Borrowing Funds – A loan allows the financial burden to be spread out over many years, and current and future homeowners will be benefactors of a healthy financial position. Borrowing funds requires a vote of the residents, and time may not be on your side.

Depending on the size of the assessment, the Board should call a meeting of all the residents. Note: This is not necessary, it is a courtesy. The Board does not have to call a meeting, but better that the Board call a meeting than the residents.

No matter how much explanation is given, there are always residents who want to requisition a meeting. The intent will probably be two-fold: 1) to not pay the assessment, and/or 2) to get rid of the Board.

Owners cannot requisition a meeting to vote against the special assessment; however, they can call a meeting to discuss the assessment or to replace the Board.

If the owners remove the Board, it is likely that the assessment will still be required. The new Board may cause the Corporation further stress and issues if they do not proceed with the assessment. They also could be at risk of being held personally liable for going against the advice of professionals should the lack of assessment cause larger issues for the Corporation.

The Property Managers also have the responsibility of writing the letter to the residents. It should include the following: • Why is the special assessment required? Was there an unexpected expense in the operating or reseve fund budgets that the Corporation doesn’t have the surplus to cover, and if so, is it for a one-time improvement that cannot be expensed through the reserve? How much is the special assessment? When is the payment due? How can it be paid? Remind home owners that if their unit is for sale, they should notify any potential purchasers as the special assessment will be indicated on their status certificate.

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“Owners cannot requisition a meeting to vote against the special assessment; however, they can call a meeting to discuss the assessment or to replace the Board. ”

If a meeting is called, the residents should be fully apprised of the situation. If necessary, bring in some experts.

As stated earlier, different payment plans can be arranged. All plans have to be preapproved by the Board and residents must know that the Board is obliged to put a lien on a unit if payment is not received within 90 days of the deadline.

Residents should know that they can discuss the extra funds with their banks, or mortgage brokers or even their insurance company.

Again, the assessment should not be a surprise, only the amount.

A Board Member’s Perspective

Good Board members work hard to ensure that there is never a need to issue an assessment, but unanticipated things can happen.

All the Board members who contributed to this article agreed on the following: 1) “If you have to do it, do it”. Be honest and upfront. Explain fully the situation and what steps were taken to try and

avoid this situation. 2) Will there be repercussions? Absolutely. You can never satisfy everyone. 3) The residents can requisition a meeting if you haven’t already done so, and again, you should explain the reasons for the requisition. If they want to replace the Board or stop the assessment, have the Property Manager or a lawyer explain the repercussions that could occur and the responsibilities that new Board is going to be facing. 4) Depending on the amount and the timing, usually payment plans can be arranged. But as one Board member said, “the quicker the better, get it out of the way so it doesn’t fester.” However, special concessions cannot be made – the debt has to be paid. So unfortunately, all Boards will have to enforce the lien procedures.

In summary, the most important piece of information that has come out of this article is:

“Communicate Communicate Communicate”.

Bill Clark CCI-Golden Horseshoe Communications Committee

I would like to thank all the contributors to this article: Richard Elia – Elia Associates Condominium Lawyers Brad Wells – President, Wilson Blanchard Management Inc. Michelle Joy – Director of Condominium Management, Wilson Blanchard Management Inc. Gail Cote – Property Manager, Property Management Guild Don Hopkins – Board Member, WCC 375 Nancy Rees – Board Member, WCC 408 David Fox – Board Member, WCC 439 Sheila Mahony and Craig Cook – Condo Residents