Tuesday, August 30, 2011
Special assessments or special levies for condos
Special assessments or special levies occur when there is a shortfall in reserve fund and/or the building or condo complex requires major repairs. The amount of special assessment can vary between $500 and $25,000 which is the highest I have seen in the Edmonton. The duration of payment maybe spread over longer period of time, anywhere between 6 to 24 months and in a small amount scenario, maybe a onetime payment. Someone asked me if there is a way to avoid special assessments, unfortunately, I wish I could say “yes” but the matter of fact is “not really”.
Some buyers thing that if you buy a newer condo they don’t have to worry about special assessments, I have come across buildings just 5 or 6 years old getting hit with $10,000 and even $20,000 levy due to poor construction and having problems with either a lot of smaller deficiencies or major problems with roofing, stucco, water leaks or other. Some condo boards may decide to increase condo fees dramatically in order to cover any major repairs or maintains issues. In this case, potential future buyers may find the building unattractive due to too high condo fees.
So what can you do to minimize you risk of coming across an assessment when purchasing a condo.
1. Talk to as many people living in the building as you can.
2. Talk to the manager on side or Management Company responsible for the building.
3. Talk to your lawyer.
4. You may want to get an inspector; however, most will only inspect the unit, and will tell you to rely on the Reserve Fund Study.
5. Ask your realtor for advice, many are familiar with different buildings and will point you in the right direction.
6. Once your offer gets accepted, the seller has to provide you with the most current condo documents unless you agree otherwise in the purchase contract.
7. Make sure you go over the Reserve Fund Study which is supposed to be done by every condo board every 5 years, the most current the better. The reserve fund study is a report issued by an in depended engineering company and will outline any current or future deficiencies about the structure. It will also advise on the amount of funding needed for these deficiencies.
8. Go over the board meetings minutes.
9. Look at the financial statements, the more money there is in the reserve fund, the better. Note, newer condos will generally have less in the reserve fund compared to older.
10. Talk to anyone from the board of directors if you can.
11. When in doubt, talk to your lawyer.
IMPORTANT!!! Once you purchase is finalized and the conditions are removed, make sure that you talk to the management 2 or 3 days before your possession date and find out if there are any new issues with the building and possibility of special assessment is on the horizon. Remember, the seller is only responsible for any special assessment prior to possession unless otherwise agreed in the contract or new levy comes into effect between your conditions removal and the possession date. If, however, the special assessment is about to occur right after the possession date and you will find out before your moving date, your lawyer may still address that issue with the seller’s lawyer before closing and both parties may come to an agreement. Caution, once the money has been transferred to the seller, it is much more difficult to get any funds from the seller afterwards.
Conclusion! All in all, special assessments are like taxes and death and are almost inevitable; all you can do is minimize your risk by doing your homework and hope for the best.
If you have any other questions regarding special assessment, you can contact me at 780-220-4224.