D.D. from Mercer County, New Jersey writes:
Dear Mister Condo,
Can an HOA impose a Special Assessment to simply increase the Capital Reserve? The Board failed to fund the Reserve at an appropriate level in previous years and wants to catch up; no Capital improvements are planned.
Mister Condo replies:
D.D., New Jersey and several other states have specific rules on Special Assessments and when they can be levied. Additionally, your own governance documents should outline the how, when, and why a Special Assessment can be levied. Your documents may not allow the Assessment even if the State law does. Special Assessments are not typically levied just to “catch up” on funding the Reserve Fund. In fact, raising the common fees to a level that does properly fund the Reserve Fund is more likely a better and more viable option. However, there are many reasons that the Board may not feel they have the time to allow for the Fund to be replenished. You mentioned that there were no Capital Improvements immediately planned but that only covers the here and now. How about next year or the year after that? Will you need a new roof then? Are the buildings going to be painted soon? Clearly, if the Reserve Fund has been allowed to dwindle, the community is at risk of not having the money it needs when the time comes. I salute your Board’s efforts at getting the Reserve Fund back on track. Since they are the democratically elected leaders of the association and they have the first-hand knowledge of the association’s finances, I would trust their guidance. You can certainly ask for the long-term funding plan to make sure this isn’t going to be a regular occurrence but if a one-time assessment gets the community back on track, I think I would gladly contribute today for tomorrow’s peace of mind. All the best!
Think of it as straight equity for your unit.
Ideally there should be enough in the Reserve Fund for the minor work to be paid for by the interest (earned by the money in the fund).