You’ve done your research. The building looks well managed, the fees seem reasonable, and then you learn there is a special assessment. Suddenly you’re wondering what that actually means for your wallet.
If you’ve read our complete guide to condo status certificates, you already know a special assessment is one of the things your lawyer checks for when reviewing the status certificate, but they cant guarantee that once you close, a special assessment won’t be levied on all owners (including the brand new ones).
This guide gives deeper into special assessments, why they happen, who they apply to, and what you can do if you’re buying or selling a property with a special assessment.
What Is a Special Assessment?
A special assessment is a one-time fee charged to all unit owners in a condo building to cover a major expense the corporation didn’t budget for through regular monthly fees. Instead of raising everyone’s maintenance fees permanently, the board collects a lump sum, or a temporary fee increase, to pay for a specific project.
Special assessments are most commonly used for large, one-off repairs or replacements, things like a roof replacement, rebuilding a pool, replacing windows across the building, or repairing structural damage. They’re the board’s way of covering a cost that either wasn’t anticipated in the reserve fund study, or where the reserve fund simply doesn’t have enough saved to cover it.
Some boards are also rather sneaky about their funding. Instead of increasing maintenance fees when necessary, they rely on special assessments to cover major expenses. This keeps the maintenance fee low, which looks good to potential buyers. That’s why we say a low maintenance fee is not a sales perk, it’s a yellow flag that you need to do some digging.
Why Do Special Assessments Happen?
In a well-run building, most major repairs are funded through the reserve fund. That money is set aside gradually over years specifically for this purpose. Special assessments tend to happen for a few common reasons:
- An underfunded reserve fund. If a board has kept monthly fees artificially low for years, there may simply not be enough saved when a major repair comes due.
- An unexpected repair. Sometimes a problem, like water infiltration or a mechanical failure, isn’t something the reserve fund study anticipated, and the cost falls outside the existing plan.
- A cost overrun. Construction and materials costs can rise between when a reserve fund study estimates a project and when the work actually happens, leaving a funding gap.
- A legal settlement or judgment. If a condo corporation loses a lawsuit it filed or is found liable for something not fully covered by insurance, a special assessment can sometimes be used to cover the shortfall.
It’s worth noting that a special assessment isn’t automatically a red flag on its own. Even well-run buildings occasionally levy one, particularly for something genuinely unexpected. What matters more is whether it’s a one-time event or a pattern.
How Much Do Special Assessments Typically Cost?
Special assessment costs vary enormously depending on the size of the project and the building. A few examples of what they’re commonly used for:
- Smaller assessments (a few hundred to a couple thousand dollars per unit) this could be money raised for paying an insurance deduction. Condo insurance deductibles are quite large ($100,000+) so if the condo has an random major, insurable damage, the board might need to issue a small assessment to offset the costs of the insurance deductible.
- Mid-range assessments (several thousand dollars per unit) are common for projects like window replacement across a building, parking garage repairs, or roof replacement.
- Larger assessments (five figures or more per unit) tend to involve major structural issues, building envelope failures, or significant legal settlements.
Your exact share of any special assessment is typically calculated the same way your monthly maintenance fees are, based on your unit’s proportionate share of the building’s common elements, which is outlined in the condo’s declaration.
How Are Special Assessments Paid?
Boards generally offer owners a choice in how to pay:
- A lump sum payment, paid all at once, often within a set window after the assessment is approved.
- An installment plan, where the assessment is spread out and added to your monthly maintenance fee for a set period, commonly one to two years.
In A Condo Purchase, Who Pays The Special Assessment?
There is a fine line here. If a special assessment has already been levied, it can be transferred to the buyer to pay off. (Provided, the buyer’s lender will still approve the mortgage with the new, higher, temporary payments.) If the special assessment is announced after the property is purchased, but before it closes, it is generally the seller’s cost to cover.
If you are a brand new owner, and a special assessment lands in your inbox during month 1, usually, it is your responsibility to pay it. However, I have heard of new owners successfully challenging the board because the requirement of the special assessment was known to the board and it wasn’t outlined (as per law) in the status certificate. So it’s worth investigating with your real estate lawyer if you receive a special assessment very soon after closing.
How This Affects Current Owners Who Are Thinking Of Selling
If you already own a condo and your building announces a special assessment, this is an important time to play offence on your listing. The stigma of a special assessment is quite significant for buyers, especially during slow real estate markets, where there’s a lot of other options for the buyers to choose from. So if you have a special assessment, discuss with your agent (ideally someone specialized in selling condos, like us), who can guide you on the best way forward.
For many buyers, an active special assessment, where they may need to pay several hundred dollars a month for 1-2 years, changes the math on being able to afford the property. It can also impact their ratios for qualifying for a mortgage. Because of that, it’s quite common for sellers to pay out the special assessment in a lump sum payment so the property can be sold free and clear.
The Unfair Truth About Special Assessments
Sometimes special assessments unfairly impact residents who do not own or use the infrastructure that requires the major update. For example, one of our clients lives on the main floor of an older condo building, and after living there for almost a decade, she received a large special assessment to replace the building’s concrete balconies. Does she have a balcony? no… must she pay for everyone’s balconies to be repaired? yes.
The building is comprised of common use and exclusive use components. The hallways, elevators, parking structure etc. are all common elements (shared between all residents). While the balconies, lockers, etc are exclusive use components (still part of the building, and still owned by the condo corporation, but some residents have the exclusive right to use them). Everyone is proportionally responsible for the upkeep of the common and exclusive use components in the building.
The Bottom Line
A special assessment isn’t automatically a disaster, but it is a real cost that deserves real attention, whether you’re buying into a building or already living in one. The best protection is the same in both cases: understand the reserve fund and keep involved in the building’s meetings.
Want Expert Real Estate Advice When Buying Or Selling A Condo?
Whether you’re a first-time buyer, a downsizer, or an investor, condos are not an “easy” purchase. In fact, no real estate transaction should be treated as easy, that’s how mistakes happen. If you’re looking for a critical eye, and honest, up-to-date advice about buying a condo, reach out to us today.
