Special Assessments are not the only Option for Reserve Fund Repairs

Gerry Hyman has a new article for the Toronto Star today.  In his article he speaks about a condominium that has put in place a Special Assessment in the tune of $51,000 per unit to be paid for over four years.

The specific question is as follows:

Our condominium board has advised that the reserve fund is not adequate for required common element repairs — including replacement of the window wall system and re-caulking panels. A special assessment has been levied, totalling $51,120 per unit, to be paid monthly over four years, on top of each unit’s common-expense contribution of about $1,000. Is there any way unit owners can fight this outlandish monthly special assessment?

Mr. Hyman’s response is as follows:

The corporation is responsible for common-element repairs, even if that requires a special assessment since the reserve fund is insufficient. Unfortunately, unit owners find themselves far too often with a special assessment of a large amount for a corporation’s common-element repair obligations.

Your board of directors could consider borrowing the needed funds. But a loan will result in greater expense since interest must be paid. On the other hand, borrowing the money would delay a special assessment as the funds to repay the loan will not be required as early as the funds required to pay for the common element repairs. The extra time will likely result in an increase in the reserve fund and better enable owners to pay the assessment.

There is no basis for owners to oppose a special assessment — properly levied — to enable the corporation to pay for common element repairs, or to repay a loan taken out to pay for those repairs.

I want to add some insights of my own:

  • The Board is obligated under Section 93 of the Condominium Act (‘The Act’) to set up and maintain a reserve fund to maintain the common elements of the condominium.
  • The condominium, through the Board, is required to collect money from the owners to place into the reserve fund to cover those costs per Section 93(4) of the Act.
  • The Reserve Fund is supposed to have an adequate amount of money in it to pay for repairs.
  • A Reserve Fund Study must be conducted at least once every three years to determine what work will be required in the coming years.

The problem is that once a Reserve Fund Study is completed, reality sets in.  Sometimes work needs to be completed at a different time, or work costs more than anticipated.  A reserve fund may end up requiring more money in order to keep the property maintained properly.

The Board should ask the owners to approve a loan before instituting such a large special assessment, though.  The Board is not obligated to do so, but it would make sense, especially given the amount in question.

The owners do have an option as they can replace directors with ones who would support bringing a By-law to the owners for approval of a loan, something which Mr. Hyman does not seem to mention.  But, it can.  That would eliminate the requirement to have such a large Special Assessment and could possibly allow for a smaller increase in the maintenance fees as well as the possibility, if the owners are agreeable, of a small Special Assessment down the road to pay off, or at pay off a portion, of the loan.

In some cases, a bank may be willing to allow the condominium to use a Line of Credit while the work is being done, which can then be turned into a loan at the completion of the project.  This would allow the Board to offset some of the costs as the condominium would only have to pay interest on the amount used, not the whole amount up front.  And the Board can pay some money towards the Line of Credit every month while also withdrawing money as required.  This also helps to keep the interest payable down.

So, while the Board is doing what is legally allowed to do (the Special Assessment) in order to do what it is required to do (maintain the property), it does not mean that it is the only option or morally the right option to do, especially without first presenting the options to the owners and gaining input first.

About Edward Brain

I am a long time condo activist and have a background in Business Administration.
This entry was posted in Condominiums and tagged , , , , , , , . Bookmark the permalink.

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