While we have discussed special assessments, condo and co-op owners, as well as those contemplating a purchase, will find this more comprehensive review useful. A board typically levies these charges to pay for a major project or repair. While no one likes to pay extra, you should understand the board’s options and why they are undertaking this one.
A board’s basic options
A board has either decided to undergo a significant project, or circumstances dictate it, such as the need to undergo a large repair, such as a new roof, boiler, or façade. One way for your co-op or condo board to handle it is to have a reserve fund. This helps you budget your money better since the board has anticipated these needs and put aside money for large capital projects. Of course, you have likely paid extra monthly charges in order for the board to accumulate this fund.
The Board could also implement a special assessment. In this case, the project’s cost is typically allocated among the co-op’s shareholders based on the number of shares owned, or a condo’s unit owners. While it is usually paid over a period of time, the board could decide not to have an end date or impose a lump sum on the shareholders/owners. The board may choose the latter, even though it imposes a greater hardship if the work needs to get done urgently.
A tax break
An assessment used to fund capital projects adds value which is added to your original cost. When you are ready to sell, this lowers your capital gain, if you are fortunate enough to sell at a higher price than you paid.
However, should this fund operating expenses, this does not get added to your cost basis.
Less appealing choices
Aside from the aforementioned two options, a board may decide merely to increase the monthly maintenance or common charges. Generally, they are loath to do so since these are permanent. This causes the resident’s ire to go up and could hurt the resale value since prospective buyers compare the regular monthly charges across the different buildings.
The board could choose to borrow the funds to pay for the project. This could hurt the building’s financial position, and may just delay the day of reckoning, however.
You have a say
While certain repairs are unavoidable, as an owner, you have a voice in these matters. For instance, you can bring up a less expensive option. If the board is imposing a special assessment to fund an operating shortfall, you need to question the board’s financial acumen. Certain projects are discretionary, ostensibly done for the residents’ enjoyment. Depending on the cost, you can voice your opposition to the board.
When there is a sale
If you are contemplating a purchase, your lawyer’s due diligence includes reviewing the financials and board minutes, which should help you understand whether or not the building’s finances are stable.
During the co-op or condo buying process whose board has already implemented a special assessment, you should know this is open to negotiation, meaning that you are not necessarily stuck paying the extra amount.