Special Assessments

I have recently shown both land and condominiums that were subject to special assessments. Realizing that not everyone is familiar with the term, I thought a quick explanation might be a good blog post. Community associations and home owners associations may need special assessments when a subdivision or condominium complex requires a maintenance project that can not be funded entirely through the association’s financial reserves. These special assessments may come in the form of a one time charge or it may be pro rated over a number of months.

Condo associations require individual condo owners to pay monthly maintenance fees. Those maintenance fees are allocated in part to ongoing expenses such as grounds maintenance and insurance. A portion of maintenance fees are also used towards establishing financial reserves to fund larger maintenance projects. Depending on the size and scope of the project, those financial reserves may be inadequate. For example, Sugar Beach condominiums in Kihei is in the process of repairing the stucco on the exterior of the building and doing a complete overhaul of its central air conditioning system. They have had to levy a special assessment on the condo owners to cover the considerable expense of the project.

In the case of home owners associations, you are more likely to see special assessments if a property has private roads or private water. There have been instances on Maui where a subdivision’s private water system has required a significant overhaul. In those circumstances, the cost of replacing or overhauling the system will be dispersed amongst the individual owners.

How do you know if a property you are interested in requires a special assessment? If a special assessment is planned or ongoing, the seller of the property is required by law to disclose the assessment. Buyers should also request to review home owner’s association or condo association documents. Recent meeting minutes from the homeowners association meetings may include notes about maintenance problems or projects that could be forthcoming. Documents detailing the associations reserves can give you a sense of how well an association would be able to weather an upcoming maintenance project without levying an assessment. Low reserves combined with low maintenance fees could be a harbinger of future assessments. Not all subdivisions and condos are going to have special assessments. If an association keeps close tabs on maintenance issues and keeps solid reserves, the less likely you are to see assessments. Contact us today if you have any questions about assessments.

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