Key Takeaways from the Surfside Condo Collapse
According to a New York Times article “Inside the Tumultuous Years Before the Florida Condo Collapse”, the author detailed the years prior to the collapse and the ultimate decision by the board of directors to defer the critical repairs. The article highlighted the instability among the board members, plagued by discord and the eventual resignation of one or more directors. This was mainly due to the decision to impose a “Special Assessment” on the owners of the property to cover the estimated millions for the repairs. Directors are owners and obviously some believed, at the time, that the amount was too much to accept.
Before we delve any further into this article lets answer the main question: What is a Special Assessment?
“A special assessment is an additional payment or a levy that a condo board has to impose when unexpected shortfalls or unexpected expenditures occur in the budget, or when an expensive system has to be replaced (i.e., a boiler) and there is not enough money in the reserve fund to cover for it.” (Condo Information Centre, n.d.) Your payment is calculated based on your unit’s proportionate percentage share that is stated in the declaration. It is noteworthy that the board does not need the owners’ approval to impose a Special Assessment. A Special Assessment can be implemented to pay for unexpected expenses, under-budgeting, or to pay for legal claims being brought against the corporation.
Currently in Ontario, condominiums are legislatively required to contribute to a Reserve Fund annually, unlike Florida. It is one of the fiduciary obligations of a director; to ensure that the Reserve Fund Study is commissioned, and the Reserve Fund is adequately funded. However, owners must be cognizant of the fact that even in a corporation where all due diligence are being met, sometimes a Special Assessment cannot be avoided. In these cases, it is the responsibility of the owner to make payment; it is not optional. In Ontario, legislation allows for unpaid Special Assessment payments to be collected in the same means as outstanding common element fees. Therefore, the board has the authority to perfect a lien against the property in favour of the condominium corporation. Such a lien takes precedence over any other debt, including the mortgage loan.
Special Assessments are usually the last resort as they can have negative implications for the condominium corporation. The most significant impact occurs because any Special Assessment must be placed on the Status Certificate of the property for the duration. This may affect the value of the units if an owner is selling during this time. Property Managers usually recommend that the shortest period be given to owners to complete payment, either one lump sum payment or a three (3) month payment plan. However, it is understood this is not always feasible and is dependent on the amount being charged.
The decision to levy a Special Assessment against their property is often one of the hardest decisions a board must make. As such, we recommend that the board work with a licensed and competent management firm and:
Evaluate all options, i.e bank loans or other loan sources
Calculate the amount of money needed thoroughly, work with the Account Manager and Auditor to ensure that what is being requested is enough to cover the needed work or obligation. The aim is “one and done”, especially if it’s a prolonged payment schedule
Keep the owners informed; the owners may not have a choice regarding the implementation of the Special Assessment, but if they understand the reasons behind the decision, it becomes more palatable. Enlist the corporation’s Solicitor, Engineer and/or Auditor if needed
Never defer necessary work in an attempt to reduce the impact on the reserve fund or financial impact on the corporation. Always act in the best interest of the corporation, even if it is not the most popular decision.
Owners also have the responsibility to evaluate the decisions of the board in an unbiased way. They must recognize that the board relies heavily on the recommendation of the experts and although some decisions may not be favourable, it is in the best interest of the community. Owners also have the right to the records of the corporation. Therefore, if they need more information on the matter, they can request a copy of the reports and quotes – whatever is needed to put their minds at ease.
It is unfortunate that this Florida tragedy may have been preventable, if the decisions taken were different. However, here in Ontario there is some comfort in the regulations in place that guides the management’s and board’s actions.
Written by Ashlee Henry*
Vice President – Operations at Alwington Communities
Ashlee Henry is an experienced Property Manager and Operations Professional with a diverse background in Commercial, Townhomes and High-rise Condominiums. She has earned an excellent reputation for resolving problems, improving customer satisfaction, and driving overall operational improvements. In addition to an MBA from Fredericton University, Ashlee has additional ACMO qualifications from Sheridan College. She holds a Supervisory Workplace Health & Safety Certification, RCM designation and is working towards her CPM designation.
* Though written by a qualified and experienced Condominium Manager, this article is not intended as legal advice. Please consult your own experts for advice.
