Reviewed by Stefan Tirschler
Updated October 5, 2022
spe·cial·a·sess·ment | ˈspe-shəl ə-ˈses-mənt
Definition: A levy on the owners of a condo property to pay for repair or maintenance costs that can’t be covered by funds on hand.
The condo board issued a special assessment to cover the cost of repairing the damage to the parking garage.
A special assessment is a levy occasionally imposed on condo owners. A special assessment may also be called a special levy. They’re collected from all the owners of a condo property for a specific purpose.
Special assessments are not planned. They’re issued only when the property doesn’t have enough money in its operating or reserve funds to cover an unexpected expense.
The operating fund is for the condo corporation’s regular, ongoing expenses. It covers things like utilities, cleaning, minor maintenance, landscaping, trash collection, and the building’s master insurance policy. The reserve fund is a contingency account for large, irregular expenses (normally those that occur less than once per year). The reserve fund covers things like replacing the building’s roof, repaving the parking lot, or replacing broken windows following a hailstorm.
Condo owners pay monthly condo fees, which go towards both funds.
If something happens that requires the condo property to spend more money than it has available, the condo board may issue a special assessment to the owners.
Special assessments often require approval by the owners, depending on the province and the individual property’s bylaws. For example, in BC, special assessments require a 3/4 owner vote in support.
There are two main reasons that a condo board may issue a special assessment:
Starting with covering repair costs: a well-run condo property should have enough money in its reserve fund to cover planned maintenance—even major projects like replacing an elevator system.
Condo properties are required to commission regular depreciation reports. A depreciation report is a projection of future maintenance costs over a long period of time (usually 30 years). It’s the condo corporation’s responsibility to budget for these projected costs.
However, if the elevator system breaks down earlier than expected (for example), there may not be enough cash on hand for the repairs. In such a case, the condo board could issue a special assessment to make up the difference.
Next, a special assessment may cover major upgrades to the property.
For example, a property’s owners may collectively decide to upgrade the building’s balconies, even though they aren’t in urgent need of repair. Or, perhaps there’s a desire to upgrade the building’s HVAC system to keep things cool during hot summer weather.
If these upgrades aren’t part of the existing budget, they may be funded through a special assessment.
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Condo owners may also be familiar with the term loss assessment. Loss assessments are a type of special assessment, but there is a distinction between the two terms.
Loss assessment is the term insurance providers use to describe special assessments for sudden and unexpected damage—the type of damage that’s often covered by insurance, like from a storm or an earthquake. This in contrast to special assessments for voluntary repairs or upgrades, which are not considered losses, and which insurance won’t cover.
Anyway, when an individual condo owner buys a condo insurance policy, they should be able to add coverage for loss assessments. As long as the assessment is in response to a loss that their policy covers, their loss assessment coverage would help them pay the costs levied against them.
A severe hailstorm damages one side of a small condo building. The siding and most of the windows will need to be replaced. It will cost $50,000 to do so.
The building’s master policy will cover the damage, but carries a deductible of $25,000. The reserve fund doesn’t have any money in it at the moment.
The condo board issues a loss assessment to the building’s 10 owners to cover the deductible. Each owner pays $2,500 (totalling $25,000), while the insurance company pays the remaining $25,000 of repair costs.
One owner, Yvette, has a condo insurance policy that includes loss assessment coverage. Yvette’s personal condo insurance will cover her $2,500 share of the loss assessment, minus her $500 deductible.
Loss assessment coverage can help with covering master policy deductibles, as illustrated here. But, it can also cover assessments for shortfalls in the master policy’s coverage—either because the master policy’s limits are too low, or the loss was from an excluded peril.
As mentioned, loss assessment coverage won’t cover special assessments for voluntary repairs or upgrades. Condo owners will need to pay this type of assessment themselves.
The owners of a very old condo building have noticed more and more leaks springing from water pipes within the walls. While this issue has existed for a while, the condo board hasn’t taken any action so far.
Finally, at a recent general meeting, the owners voted to replace the whole plumbing system. This was not budgeted for, and will cost approximately $200,000. Since the issue stems from old, worn-out plumbing, insurance won’t respond to help.
The board issues a special assessment to the 25 owners of the building. Each must chip in $8,000 towards the cost of replacing the plumbing (totalling $800,000).
In cases like these, the condo board can’t make a claim against their master policy for the repairs, because insurance doesn’t cover wear and tear, or damage that occurs gradually over time. Similarly, the condo owners won’t be able to make claims against their own policies to cover the special assessment either—their individual policies also exclude wear and tear.
You can learn more about the intricacies of condo insurance coverage from our condo basics article, if you’re interested.
Now, these examples are perhaps oversimplified; not every owner within a condo property will have to pay the same amount. That brings us to the next topic:
There are two steps to calculating a special assessment:
The first step is easy enough to follow. The board will get quotes on the total cost of the repairs or upgrades for which they’re issuing the assessment.
The second part gets a little more complicated. In a condo property, each owner has a share of the condo corporation. Their share determines how much of any assessment they’re responsible for.
However, owners rarely have identical shares. Each type of unit within a property carries a certain share amount. For example, one-bedroom unit owners may each have a 1% share while two-bedroom unit owners get a 2% share.
A condo property is issuing a special assessment to repave the parking lot. The cost to do so will be $100,000.
In this building, each one-bedroom unit carries a 1 percent share in the corporation. Two-bedroom units have 2 percent, and three-bedroom units have 3 percent.
So, each owner of a one-bedroom unit will have to cover 1 percent of the special assessment, or $1,000. Two-bedroom unit owners will each pay $2,000, and three-bedroom owners will each pay $3,000.
Each condo property splits its shares differently. You can check how your own building handles special assessments by reviewing the condominium declaration.
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About the expert: Stefan Tirschler
Stefan is responsible for underwriting leadership, market expansion, and product research and development for Square One's operations. Stefan has earned his Fellow Chartered Insurance Professional designation, and maintains a level 2 general insurance license in British Columbia, Alberta, Saskatchewan, Manitoba and Ontario. Stefan is also an Education Committee member and CIP/GIE instructor for the Insurance Institute of Canada.
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