By Maris S. Davies, Esq., HindmanSanchez
Special assessments are an inevitable fact of life for associations. Every association has a moment in time when the board comes to the conclusion that: (1) the association has failing infrastructure and cannot afford to pay for a greatly needed overhaul; (2) the association has a sudden expense it cannot cover (such as large insurance deductibles); or (3) the association would like to undertake new capital improvements for the community to update the community, but does not have the funds to do so. One potential way to resolve monetary shortfalls is to levy a special assessment against the homeowners in the community. A special assessment is typically assessed against all or a portion of the homeowners in a community to finance major projects or unanticipated and unbudgeted expenses, including but not limited to the scenarios above.
When first deciding whether or not levy a special assessment a thorough review of the association’s declaration and all amendments to the declaration is necessary. The first question that must be answered is does the declaration even allow for a special assessment at all? Assuming it does, an association must consider the following: (1) does the special assessment provision in the declaration provide the board with the power to levy an assessment for the specific issue at hand; (2) does the special assessment provision require a vote of the homeowners, or can the board levy the assessment with approval; (3) how much will the special assessment be per unit; (4) can the board afford to allow interval payments over time or must the assessment be paid in one lump sum; and (5) if the payment must be made in a lump sum, can the homeowners in the community afford to make it?
While a special assessment may be beneficial, and potentially necessary, for an association, the initial response from the homeowners will likely be negative and potentially coupled with pushback based on the amount and/or the proposed use. Unfortunately, this is a typical response. Assuming the association must secure the vote of the homeowner to move forward with the special assessment (which is typical), the best way to address this initial reaction from the homeowner is to be upfront and transparent about the need for the funds, to have open lines of communication with the homeowners, and to get the homeowners involved in the decision making process. In addition, an association should strive to provide the homeowner with a payment schedule, or tentative payment schedule, as early on as possible in the process so as to allow a homeowner to budget and/or make arrangements to secure the funds. The association should also be open to reducing the scope of the assessment if necessary, i.e. outlining the ideal situation, the bare minimum, and then finding some middle ground that accomplishes the association’s goals but will still be approved by the homeowners.
Special assessments are an extremely helpful mechanism to secure funds in a precarious situation; however, special assessments are reactionary and associations should take steps to properly budget and fund their reserves so as to avoid special assessments related to unexpected events. Proper planning both now and for future expenses is paramount. If the association’s declaration does not contain special assessment language, and the association is a pre-Colorado Common Interest Ownership Act (“CCIOA”) community (i.e. created prior to July 1, 1992) a declaration amendment would be necessary to create the power to levy special assessments. If the association is a post-CCIOA community (created after July 1, 1992) and the declaration is silent with respect to special assessments, the CCIOA budget process applies. If the board follows the budget process and the special assessment budget is ratified by the owners, the board may move forward with the special assessment.
Maris Davies is an attorney at HindmanSanchez P.C. and specializes in representation of Homeowners Associations and Community Association law. Please visit www.hindmansanchez.com for more information.