Understanding condo special assessments

What is a condo special assessment?

A special assessment is a one-time charge levied on condo owners by their condo corporation to cover urgent repairs, unexpected maintenance, or significant capital improvements that were not included in their long-term financial plan.

Special assessments are not inherently negative, as they reflect the condo board’s commitment to maintaining the condo and protecting owners’ investments. However, they can be an unexpected financial burden, making it essential for both owners and board members to stay informed and prepared.
 

Do you have to pay special assessments?

Yes, condo owners are typically required by law to pay special assessments as determined by their condo corporation. These fees are necessary to maintain shared spaces and uphold the board’s fiduciary duty to manage the condo’s finances responsibly.

Failure to pay a special assessment can lead to late fees and penalties, liens on the condo lot, and legal action. Many condo corporations have the authority to impose interest on unpaid assessments. If an owner does not pay, the condo corporation may place a lien on the condo lot, which must be settled before selling or refinancing. Persistent non-payment could result in legal proceedings, further increasing costs for the condo lot owner.

Unpaid assessments can also impact the overall financial health of the corporation, leading to potential credit challenges when securing loans or negotiating contracts with vendors. While these assessments can be inconvenient, they serve a vital purpose: protecting the condo’s financial integrity and preventing small issues from escalating into larger, more costly problems.
 

How to avoid condo special assessments

While condo special assessments are sometimes unavoidable, there are proactive measures that boards and owners can take to minimize their likelihood. A healthy reserve fund is the best defense against special assessments. The reserve fund is designed to cover major repairs and replacements over time, helping to prevent financial surprises for owners. If a condo community finds itself facing a depleted reserve fund, proactive steps should be taken immediately. If a low reserve fund is identified early, boards can take action before a crisis occurs, making it easier for owners to plan and budget accordingly.

First, board members should review the most recent reserve study, as regular updates to reserve studies are required under Ontario’s Condominium Act. This study outlines the expected lifespan of key building components and estimates future repair costs. If the fund is insufficient, potential solutions include:

1. Conduct regular reserve studies

   Under Ontario’s Condominium Act, reserve fund studies are generally required to be updated at least every three years. Condo corporations should consult the Act and seek advice from their attorney and condo management company to support compliance with specific requirements applicable to their community.
   
   “One of the biggest factors that drives a condo special assessment is when reserves have been underfunded,” said Audrey McGuire, vice president of FirstService Residential Ontario. “For example, when there's a large expense two or three years out and a corporation has not incrementally increased their fees to bolster reserves that would otherwise cover it, that can force a special assessment.”
    

2. Increase condo fees strategically

   Though raising monthly condo fees may be unpopular, incremental increases can prevent the need for sudden, large assessments. When fees are adjusted proactively, owners can plan their budgets more effectively. Educating owners on the reasons behind these gradual increases can help increase support for financial planning efforts.
    

3. Review insurance coverage

   A comprehensive insurance policy can help protect against sudden financial shortfalls caused by major damages, legal claims, or unexpected repairs that would otherwise lead to a special assessment for your condo.
   
   Condo boards should regularly review their insurance policies to confirm they have adequate coverage. Partnering with an experienced insurance broker can help identify gaps in coverage and negotiate better terms and premiums that align with the community’s needs.
   
   To properly budget for insurance costs:
    
   • Consider what your corporation has experienced over the last year regarding your insurance needs and what coverage you wish you had.
      
   • Review your current coverage with your condo management company to gain its insights on possible gaps.
      
   • If your condo management company has insurance resources, tap into its buying power to secure the best possible rates for the coverage your community really needs.



4. Optimize costs

   Reviewing service contracts, maintenance schedules, and energy efficiency measures can uncover opportunities to save money without compromising quality.
    

5. Partner with an experienced condo management firm

   Financial planning, vendor negotiations, and maintenance schedules require expertise. FirstService Residential has extensive experience managing condo communities, helping boards develop sound financial strategies that protect condo lot owners from unexpected costs.
    

6. Maintain open communication with owners

   When owners understand the reasoning behind financial decisions, they are more likely to support responsible financial planning. Regular updates, financial reports, and town hall meetings can increase community engagement and support.
    

7. Explore alternative funding options

   In cases where reserve funds fall short, financing options such as loans or lines of credit can help cover major expenses without requiring a large upfront payment from owners. Communities managed by FirstService Residential have exclusive access to its affiliate FirstService Financial, which delivers best-in-class financial and insurance programs and services to protect and enhance the value of our clients’ condos through extensive buying power, potentially reduced interest rates, all through local banking institutions.
   
   Like all critical decisions, communities must consult with their legal counsel and governing documents before applying for a loan to support compliance with the community’s bylaws.

Planning for a stable financial future

Special assessments can be stressful, but they don’t have to be an inevitable part of condo ownership. With proactive financial management, strategic planning, and expert guidance, boards can reduce the risk of unexpected fees and maintain a well-funded, well-maintained community.

At FirstService Residential, we specialize in helping condo corporations navigate financial planning, reserve fund management, and long-term budgeting. Our experienced teams work closely with boards to identify cost-saving opportunities, implement best practices, and keep communities financially healthy.

If your Ontario condo board is looking for expert support in managing financial health and reducing the likelihood of special assessments, contact FirstService Residential today to learn how our tailored solutions can benefit your community.