By Gina C. Botti, Winzenburg, Leff, Purvis & Payne, LLP
The Colorado Common Interest Ownership Act (“CCIOA”) does not define the term “special assessment” or address when or how a special assessment may be levied. So, what is a special assessment and when can a special assessment be levied?
We know common expense assessments are based on a budget adopted no less frequently than annually by the association. Generally speaking, a special assessment is an expenditure or liability, such as a capital improvement, that the association has not budgeted for either in its annual budget or in its reserves. Special assessments allow associations to meet or cover an unanticipated budgetary shortfall.
A good example of this is when the community is devasted by a hail storm and the roofs are damaged. This is not something the association would typically budget for annually, as it’s unknown when or if a hail storm will occur. If the association is hit with paying a high insurance deductible and the association does not have the funds in reserves, the association may need to special assess all of the owners to cover the costs for the insurance deductible.
Before doing so, however, the association should look to its declaration and bylaws to determine if the authority to special assess exists; the authority and procedure is always document specific. An association may exercise its powers only in compliance with the authority and procedures outlined in its declaration or bylaws. The association should look at its documents closely as there may be an owner vote requirement to specially assess. If the association’s declaration and bylaws are silent, or specifically prohibit the board from levying special assessments, the association may not levy a special assessment and may need to look at other options to pay the costs, such as taking out a loan, or assessing only those owners who benefit from the expense as an individual purpose assessment if the declaration or bylaws allow. The association may also want to consider amending its declaration to provide the authority to specially assess.
The association should also weigh the priority of its maintenance obligations as part of exercising its reasonable business judgment. For example, if the limited common element balconies are in need of painting, but the railings are falling off, the safety concerns of the railings should take precedence over the painting for any special assessment obligation.
The association should also determine if the special assessment will come due all at once, or if an owner will be permitted to pay the assessment in installment payments. If a special assessment is not paid by an owner, the association should follow its collection procedures as it would any other unpaid assessment.
The ability to special assess owners to perform the maintenance obligations under the declaration can save the association the expense of paying interest on a loan and deferring projects that are needed in the community.
If your association does have the ability to special assess, I guess that makes you special!