Toronto Condos: What is a Special Assessment?
April 8, 2011
A question I’m asked on a regular basis is, “What’s a reserve fund?” and the simple answer is that it’s like a big pot where every month a portion of your maintenance fees go to make sure their is enough money to maintain and make any major repairs to the condo’s common elements (ie. the structure, the hallways, the roof, the garage, etc.) The next question that follows is, “What if a condo corporation doesn’t have enough money in the reserve fund to make the repairs necessary?”… two words, SPECIAL ASSESSMENT.
A special assessment is basically when the condo corporation doesn’t have enough money in their reserve fund to effect a major repair or critical renovations in the building and the Board of Directors of the condo corporation has to vote to go back to each unit owner and ask for their proportionate share of the outstanding amount or expected expenditure. Your share is usually based on the amount of square footage you have. It can amount to hundreds of dollars or thousands of dollars depending on the amount of work required.
If you are a unit owner in the building there is no way around paying the assessment whatever the cost. Most times it’s a manageable fee but some buildings, depending age and the amount of work required, have had to implement assessments that have required owners to take out secondary financing. If you aren’t able to pay the assessment, the condo corporation is allowed to put a lien on your property and at the time your unit sells they will get paid back the amount owing plus interest and legal fees.
I know this sounds very scary but there are often major advantages to buying into a building that has had a major special assessment…
- often the seller pays for the assessment in full before selling their suite so buyers don’t incur the cost
- if major repairs occur then as a buyer you get the full benefit
- often times major repairs/renovations to a building’s lobby or common areas can increase the overall value of the building
- if the repairs or improvements are critical to the building’s health then once done, the repairs will be perceived by the marketplace as a good investment
Obviously, before buying any condo, you want to make sure your lawyer reviews the condo documents for the corporation and that will tell you whether or not there is a special assessment being contemplated or if one has been approved.