Special assessment is a phrase that sends chills down the spines of community managers, board members and owners alike. The term "necessary evil" is frequently used when boards are contemplating a special assessment; terms that owners use to refer to those assessments are generally not considered fit for publication. So what is a special assessment, and why is it so commonly viewed in a negative light?
The governing documents for associations provide specific definitions for special assessments. Generally defined, a special assessment is a one-time (or not regular) assessment, applied to owners in the same manner as other assessments, that is used to cover an expense that cannot be paid for from the operating or reserve accounts. This expense could be one that did not exist previously (such as a capital improvement to the community like adding playground equipment to a common area or building a clubhouse or swimming pool), but most of the time special assessments occur for one of two reasons: construction defect/deferred maintenance or significant delinquent accounts.
Construction defect/deferred maintenance. This is probably the most common issue facing a board that is considering a special assessment. When it happens in conjunction with construction defect, it's usually because the association sued the developer (and contractor/subs/etc.) for failing to build the community properly and received some funds in a settlement/lawsuit, but after paying the costs associated with construction defect litigation, found they had insufficient funds to do enough of the repairs. While going through construction defect litigation does not necessarily mean a special assessment will follow, nowadays it is uncommon for an association to recoup fully for its needed/desired repairs. Older associations (those that were created prior to October 23, 1999 and thus not subject to reserve study requirements in ORS 94.595 and ORS 100.175) may find that they have significant deferred repairs/replacement but lack sufficient funds to undertake them, thus requiring the imposition of a special assessment (for more information about reserve studies, please see my article from March 2, 2012 entitled "Reserve Studies").
Significant Delinquent Accounts. Another reason that boards find themselves in need of a special assessment is due to large and/or multiple delinquent accounts. This is the prime reason that boards need to be vigilant whenever owners become past due, because it's much easier for an owner to get caught up with a small delinquency than when it has turned into thousands (or tens of thousands) of dollars. An association that does not aggressively pursue past due accounts is one that may find itself facing a special assessment (which the past due owner is also likely not going to pay, continuing the problem).
When is the right time for a special assessment? The only right time, in my opinion, is when failing to do so may cause further problems for an association. As an example, let's say the community has a private parking lot, and the lines are worn/missing, there are large potholes in the asphalt, and it's getting unsafe for use by people and cars. While owners and residents are probably aware that the parking lot isn't in good repair and are using caution, leaving the lot in its current condition is unwise because: a) someone might damage him/herself and/or his/her car in the potholes, causing a potential insurance claim, b) owners looking to sell or refinance may be unable to do so because of the hazardous and unsightly condition of the parking lot, and c) owners may decide to withhold assessments or not worry about violating rules because it appears the board is failing in its duty to protect and enhance the community.
Special assessments are generally implemented for a specific purpose or purposes: to repair a parking lot, to replace roofs, to put in a swimming pool. Boards should always provide information as to what the special assessment funds will be used for in the notice of special assessment. Whenever possible, owners should be given advance notice of the special assessment so that they have time to put together the necessary funds, and I personally think this notice should be not less than 30 days before the special assessment is assessed.
Remember that, like all board decisions, a special assessment must be approved at a duly noticed board meeting, which all owners must be invited to attend. Depending on the complexity of the special assessment and the need that is requiring it, boards may also wish to draft a special assessment resolution (see my blog post from November 10, 2011 to learn more about resolutions), which must also be approved at a board meeting.
Special assessments should not be used in lieu of proper financial planning, but they are a tool for the board to use if it has found itself otherwise unable to meet the financial obligations of the community.
Boards considering taking this step should discuss the matter with the association's attorney or community manager, who may be able to offer additional ideas/options in lieu of a special assessment or support if it is, after all, the last, best option.