M.W. from Fairfield County, Connecticut writes:
Dear Mister Condo,
How far ahead can a Condo Association collect assessments for an upcoming major expense (Roof replacement). Our Board would like to assess owners 3 years ahead of the expense, can we do that?
Mister Condo replies:
M.W., as long as the rules for levying and collecting the Special Assessment as outlined in the governing documents are followed, I don’t see why the Board cannot begin collecting ahead of time. It is unusual for the assessment to be levied that far in advance but, perhaps, the Board has doubts about the owners to pay the assessment and they need to see if all owners will pay before committing to the project. In many cases, the contractor performing the work requires a deposit to being, payment along the way at critical milestones, and at job completion. The association would want to have the money readily available to meet those requirements. An HOA loan might be a better solution if homeowners are not willing to part with their money in advance but that would cost the members more in the long run. As long as the money is set aside in a separate account for the project requiring the Special Assessment and spent only in accordance with that project, they may have the right to collect the money in advance. Of course, all funds must be fully accounted for and any excess collected must be returned to owners at the end of the project. All the best.
3 thoughts on “Condo Special Assessment Levied 3 Years in Advance of Project”
My concern would be, is it a realistic price and owner confidence if they have to vote on it?. Who knows if prices will be higher or lower in the future, 3 years off. Few really competitive bidders would bid now without a huge contingency added in.
Three years off is also an attempt to bind future boards, that should require an owner vote, iMHO.
Best to have competitive bids later combined with a loan proposal that can offer owners to pay or take the loan terms through the association.
More work but much easier to get owner buy-in if they have to vote and do know all the details.
Also for now, increase the regular assessments at the next opportunity and place an amount in a special reserve fund to ease the hit in three years.
What we don’t know is
1.) Does the reserve study show the roof needing replacement in 3 years?
2.) Are the reserves so underfunded that nothing but a special assessment (or loan) is necessary?
a 3 year special assessment is less per month for payments over a typical 1 year special assessment term.
Paying in advance ensures that the owners who have benefited from the roof over the years pays the cost of getting that benefit.
Put enough into the reserves to pay for a roof consultant that works for the HOA and does quality assurance observations and watches the roof contractors work; I see to many contractors off on their own who don’t always do the greatest job when un-watched.
Something to keep an eye on is the legislation “Securing Access to Finance Exterior Repairs (SAFER) in Condos Act of 2022.” Link attached. “The SAFER in Condos Act is intended to reduce upfront costs to condominium homeowners facing special assessments to finance necessary building repairs.” CAI is providing support for this legislation.
It could be the association couldn’t obtain favorable financing, even though they can commit future income. It happened once at our condo many, many years ago. Each unit owner had to come up with the full amount cash, or be able to obtain our own financing. It was the hard way to learn about reserves – from what happens when they are woefully inadequate. One foreclosed. It sounds like they are getting a running start ahead of time, but the roofing costs keep ratcheting up, hard to know in three years how much more it will cost. than the current estimate.