Horror Stories About Special Assessments

 

A surprisingly high number of letters have been received about special assessments that seem unwarranted, that occur without prior notice, for which boards give no reasonable explanation, and for which boards refuse to give proof that quotes were sought for the jobs. Owners are totally helpless in these cases. This is one more reason why we need a Condo Umbudsman and a stronger Condo Act to protect owners' rights. Also click here for section on Waste of Money and Condo Fraud, Kickbacks and Conflict of Interest

Letter:  We just have been told that we would have to pay for a special assessment of around $27,000 each unit in two instalments, one in two months and the other in six months. Not only we can’t afford this but it is very unfair because it is for the roof and owners have been complaining about leaks for three years now and they have refused to do anything or even never answered us, so they knew about it and could have saved some money; instead they went ahead with stupid expenditures such as replacing gates, doors and repainting the garages and others that could in all cases have waited until there was no emergency such as leaky roofs. As a result our reserve fund was depleted of around $450,000 in just over two years just for cosmetic reasons that were we all agreed not important at all except for the pride of the board and perhaps the benefit of some of the contractors all good friends of the manager. How can we stop this and instead take a loan that we could repay in smaller and longer special assessments? How can we get rid of these people? Thank you.

— September 2013, Toronto

Letter: My condo just spent over $500,000 of upgrades this year on the lobby (small lobby), the manager’s office (small office), guest suite (only one), back entrance (emergency entrance nobody ever uses). There was no need for any of this because all they did was to buy more expensive stuff and added features that were not there in the first place and this was not in the reserve fund plan at all. As a result we now have a 20% increase in fees. I learned of all these details by mistake as I happened to receive a copy of an email from a board member to another and this board is worried. I think that he sent me a copy by error because my name is very similar to the receiving board member. I was horrified because our budget is less than one million, not more and the best I can recall our reserve fund has about one million also.

— September 2013, Ottawa

Letter: Please my wife is having a nervous breakdown. We live in townhouses with plain hard working people like us and the roofs are leaking and the board has decided to replace them in three stages starting with the worse case ones and that happen to be the block where three board members live. Our reserve fund is supposed to cover this but because it was short a bit, it was decided to have a special assessment. But then the board decided to replace the roofs from shingles that had lasted for 20 years to tiles from Spain and that will cost us three times the price. They have hired one contractor and he happens to be related to the manager. That means a large special assessment of at least $10,000 per unit right away and we can’t afford this and we can’t sell because everyone is trying to and no one wants to buy with such an assessment coming. We tried to appeal to the auditor at the AGM and he said that he was not a lawyer, even though it’s clear that it is a huge upgrade but he advanced that this will add “tremendous value to your homes” to which the lawyer added that it is also great against fire (we don’t live in California or in a woodland!). Our argument is that they can’t use our reserve fund for this upgrade and we should not have to pay for it and it is well over the 10% limit of our budget. Our other argument is that as the roof will be done over 3 years we should spread the payments over 3 years. That was the end of the AGM and the lawyer ruled against us. We are all immigrant and we don’t know what to do. Please help up because we can’t afford it and my wife has had to seek medical treatment as she is so worried. 

— September 2013, Brampton

Letter: We just received a special assessment to replace the boilers for a total of $160,000 so that it is over $1,000 per unit and we have to pay in one month. Can you help us here because we have a reserve fund of over $1,000,000 and the schedule in the reserve fund study shows these replacements are due for between next year and three years from now. I don't think that we should have a special assessment if we have an adequate reserve fund.

— January 2012, Mississauga, ON

Answer: This is the purpose of reserve funds: to prevent special assessments. A priori, your reserve fund seems to be adequate. At the very least, the replacement of these boilers will not exhaust it. There is probably no rationale for this special assessment. To compound this problem, they are not giving you sufficient time to find the money. It might make sense to have another reserve fund study carried out. I suggest that you requisition a meeting of owners to discuss this issue with the board and make your concerns heard. Click here for Requisitioned Meetings.

Letter: We got a special assessment of just over $5,000 per unit without prior notice and the work on [deleted to preserve anonymity] has already started at the same time that we received the notice. We wrote the board and manager to ask to see the tenders for the contractors that are doing the work but they said that they would look into it but we don't think that there were tenders and we wonder whose friends are getting the money. Then we never heard anything about it and the work went on and we never either received a good explanation as to what is wrong with the [deleted] and the condo is only 8 years old. We tried to  do a requisitioned meeting to discuss it but the board members went door to door and told owners not to sign the petition and that we were only troublemakers. We wanted to have the work stopped but apparently it would be too expensive to cancel the contract even if we got rid of the board because there would be a large financial penalty. The only thing that we obtained was to spread the payments over 5 months but it's a lot of money to add $1,000 to our budget each month and some owners are trying to sell and they have to sell for less because of the assessment and it is not even in the status certificate and I read what you wrote about this in the chapters and this could mean that new owners could refuse to pay and this would be an even greater problem for us.

— January 2012, Toronto

 Letter: Eight months ago we got a special assessment of 20% of our yearly fees that for me amounted to $64 a month or $720 a year and this is going to last for 3 years. They didn’t give any reason and we had had a 10% increase in fees as part of the regular budget. Now they just announced that our fees are going to go up by 20% again so that suddenly in less than a year my monthly fees are going up by $64 in addition to another $64 for three years for the special assessment for a total of $128 a month or $1,536 a year. That’s a lot of money and all the owners are very upset as most of us can’t afford this especially in these times of recession. Please tell us what we can do about this. 

— October 2009, Ontario

Answer: This is, indeed, a huge increase and I understand the predicament that this puts you in. Generally, special assessments and steep increases in fees occur when a condo, usually one built before 2001, does not have an adequate reserve fund and has to carry out serious repairs and replacements. Boards are then to be congratulated for such a decision, otherwise the building would keep deteriorating. But, in your case [several letters were exchanged], your reserve fund is adequate to meet whatever they need to do and your total yearly budget also seems to be adequate for a building your size. Also, normally, one would applaud spreading a special assessment over three years rather than within a few months, as often occurs. (Click here on Owners' Money Facts for additional information on special assessments.)

The main problem here lies in the fact that owners do not even know the reason behind the special assessment and the large increase. One can be concerned that the board may be proceeding with expenditures that may fall under the rubric of those for which owners should be asked for their permission. (Click here on Owners’ Permission.) You do need to requisition a meeting of owners to request a detailed accounting of and rationale for all these new expenditures. (Click here on Requisitioned Meetings.)

Letter: Please help us because we are totally lost here in our townhouse because we just received a notice and we are going to be assessed $46,000 for each of the [less than 35 units] in our development [about 25 years old]. They have informed us our underground garage needs to be entirely redone inside. We have to pay in three instalments beginning in two months from now with 3 months between each payment. They say that the work will be done next summer and that it may cost even more than this. We don’t have this kind of money and we need to sell. How is this going to affect how we sell?

— October 2009, Ontario

Answer: [Here as well, several letters were exchanged in order to make sense of the situation.] Don’t sell yet! The total special assessment is around 1.5 million and this is huge. The first problem here is that special assessments have to be proportional to the fees paid and this development has three different fees so that, in your case, your assessment should be lower because you own one of the smallest units. Second, the garage project has not yet been confirmed by any engineering firm nor has it been tendered for contracts. Therefore, the board and management have no idea of the costs: They cannot exact a special assessment because they have no figures on which to base it. Third, compared to similar work done in other townhouses, the price quoted seems a priori to be excessively high. However, it is possible that your board has decided to levy a special assessment to refloat the entire reserve fund in addition to paying for the garages—this would be good but they should consider spreading the burden over 2-3 years or simply raise fees.

You want to sell but here is the problem: When a board is aware that there will be a special assessment, they have to include this information in the status certificate. (Please click here on Why Is a Status Certificate So Important?) So, if they do this, it will be more difficult for you to sell your house. And, even if they don’t do it, you have to declare it to the real estate agent, otherwise you could be liable in the future and so would your board. As well, other owners may panic and try to sell with a resulting reduction in the value of your property. Better bite the bullet and requisition a meeting of owners [see above letter] to get all the information needed and to protest this special assessment based on few facts: They need to tender this project first. If this fails, all owners together should seek a solid legal opinion and this will be cheaper than remaining in your current situation.

Letter: We had problems with water coming into our unit and it took us years to have the property manager do something about it but they said that they needed a special assessment just for us. As a result of this special assessment that was not large by the way, other owners have stopped talking to us and some told us that it was our fault if our condo is in bad financial shape.

— August 2009, Toronto

Answer:  [This letter was abbreviated] points to several problems. First, neither the board nor the management should have let it be known that the reason for the special assessment was to repair your particular unit. You deserved anonymity unless owners wanted to check to make sure that money was really spent for this problem. As it is not the case here, this represents a breach of confidentiality, which is not fair to you.

Second, your condo only needed a small (around $300 each suite) special assessment to repair your water penetration problem: If the condo could not absorb this expenditure, it may mean that there is something wrong with the general health of your condo’s finances. A condo’s budget ought to be able to absorb doing such repairs—especially in view of the fact that your building has over 100 units, and the repairs to your unit surely didn’t cost over $30,000. Therefore, either there were other suites that had the same problem or you can start asking, “where did the money go?”

Letter: I am new on the board of directors of a [less than 45 units] townhouse complex. We just completed redoing the sidings because the board before me had been told by the management company that there were leaks coming into units. We have proof of only one such a unit with this problem but the engineer that the management company hired documented the problem as being widespread. No one has ever seen this report but the go ahead was given and we had a special assessment for a total of $450,000 and each suite paid from $10,000 to $18,000 roughly. The work is completed and I have learned that there was no leakage in any other suite and that even if there was, the water would not have come from the sidings but from the window frames. I also learned that the price we were charged was too high. We would have had eventually to replace the sidings but it could have been done later and have given us the time to increase our reserve fund that is now totally flat, so that in addition to this special assessment we now have to pay nearly half of our monthly fees into the reserve fund because we know that we will soon have to replace the roofs because these have started leaking as well. I feel totally helpless because it seems to me that the previous board, the management company, the engineers and the contractors were all in this together. We live in a nice area and I am torn between leaving and staying and what my duty now is and how to go about it. [Abbreviated letter]  

— October 2009, Ontario

Answer: Difficult to know where to begin answering this! There are multiple issues from the past and others from the here and now. To begin with, here is what surely went wrong. Your board never tendered the contracts with engineering firms nor interviewed any. They did not do due diligence and neither did the management company, neither in terms of contracts with the engineers nor with the contractors. As a result, you had no way of knowing what a competitive price would have been. You never saw any of this documentation purporting to show that leakages were widespread and where they came from: You are perfectly entitled to see this documentation right now, both as a director and an owner. You would need to have different opinions from other engineering firms but this will cost you and, then, they may be loath to contradict a colleague for work that has already been done.

You absolutely need to walk to each townhouse, knock on doors, and ask if they had a leak, where, and when and if they have one now: You need this both for the past and to document that the roofs are actually leaking, which seems to be your next expensive problem—you are looking at another small fortune here. If you have documentation that there indeed was water penetration, then you need engineers to tell you whether it was coming from the sidings, the window frames, or a combination of both. (And now they say that you have a roof problem...) Do you need to caulk the window frames or has it been done when the sidings were being replaced? When you and the other directors have all the facts, rather than hearsay, then you can think of your next step. But the problem here is that I wonder how you will be able to get at the facts because everyone is so mixed up with everyone else. As you well know, engineering firms that supervise contractors’ work are entitled to a commission that, if I recall, ranges from 8 to 15%. And, in this case, one can also wonder whether your management company is not getting a kickback under one form or another or, yet, may be related to the contractors.

You have to find another management company or, because you have so few units, you may want to self manage with the help of an accounting firm for the financials and bills. Click here on Self-Management for further information. Owners should be told the truth ASAP but not before you can document it.

Basically, the problem flows from the fact that, from the beginning, proper procedures were not followed, proper documentation was not available, poor communication followed, and you have a questionable management company that, at the very least, is withholding documents from you. A previous board of directors did not do due diligence, probably out of ignorance rather than malice. All of which could have been avoided with better government oversight, a Condo Act with more teeth, boards that are better educated, and management companies that are regulated. None of this is any consolation to you.