According to at least one estimate, 70 percent of condo corporations are underfunded. Owning a condo in one of these communities puts you at risk of a Special Assessment.
If all goes well, your condo board has taken steps to improve the financial position of your corporation and avoid a special assessment.
Does your Corporation require a Special Assessment?
The only way to know is to review the Reserve Fund and operating accounts as reported in your corporation’s financial statements. Review at least the past five years of records. For each year determine if each account has been increasing or decreasing. This tells you if funds coming in are sufficient to cover current expenditures.
Next, review estimated funding requirements for the next three years to determine if near-term upcoming expenditures are expected to deviate from the past few years. This is particularly important for the reserve fund where annual expenditures are more likely to dramatically increase as a condo building ages.
This information should be sufficient to determine if your condo corporation may soon require a special assessment.
Where it appears that anticipated expenditures are likely to exceed annual revenues and savings, your condo corporation is at risk for an increase in condo fees or, when the amount is more substantial, a special assessment.
Alternatively, the condo corporation may consider obtaining a loan when a special assessment or increase in condo fees may be viewed as too burdensome for condo owners.
Communicate! Communicate! Communicate!
Regardless of how a funding issue is to be resolved, condo owners are legally required to fund it. Make them aware of the situation at the earliest possible date, reasons for it and details.
Anticipate that owners will be angry and upset. They deserve to be. This represents a management failure at some level.
The board should be honest and forthright about the situation. Hiding the truth is, or will be assumed to be, part of the problem.
In all likelihood, the board will have done their homework and identified the best path forward.
Educate yourself on what work is necessary in your building, how much money is required and how it will be obtained.
Look closely at the current board and determine how well they have managed corporation funds. Decide if they are correcting a problem created by a prior board or if they are the cause of the current financial shortfall. This will help you determine if new condo board participation is warranted.