HOA boards are responsible for financial planning for the community, allocating incoming dues and fees to cover day-to-day expenses and to the reserve fund for future projects, maintenance, and improvements. Sometimes, unforeseen expenses trigger a special assessment, catching homeowners unaware and unprepared.
While HOA boards have the right to issue special assessments in certain situations, it may come as a shock when the amount is significant and comes without warning.
Today, we’ll discuss HOA special assessments, what they are, what’s fair, and what you need to know to protect yourself.
What Is an HOA Special Assessment?
Special assessments are a one-time fee above and beyond a homeowner’s dues to cover major repairs, remediation, storm damage, or any significant unplanned or emergency work that exceeds the reserve capacity.
HOA boards have a right to charge special assessments, but most do so only when necessary. Sound financial planning and periodic reserve fund studies should ensure most expenses are covered when the time comes. However, you can’t plan for every eventuality.
When special assessments are levied, they apply to every community member, whether they are directly affected or not. For example, if a storm causes catastrophic damage to a common area, all homeowners must share the repair cost.
In California, there are legal limits as to what homeowners can be charged in a special assessment. Legally, the board cannot charge more than 5% of the gross annual budget. That 5% must be spread equally across every community member to ensure fairness.
An exception happens if more than 50% of community members agree to an amount higher than 5%, which can occur in the case of major improvements, such as new roadways or funding costly projects. This stipulation opens the doors for members to agree to pay for improvements they genuinely want voluntarily.
What Can Special Assessments Be Used For?
Another area of California law qualifies the types of projects special assessments can be used to fund. Under the law, capital improvements—anything considered essential to the community—such as upgraded materials, building new or updated common areas, or anything associated with improved quality and longevity. This stipulation prevents HOA boards from issuing special assessments for projects of little interest to the residents.
Examples of acceptable expenses that can be funded with a special assessment include:
- Roofing (replacement, repair, or new)
- Construction or major repair of private driveways/roadways
- Renovation of common buildings (i.e., clubhouse, pool house, etc.)
- Construction of facilities such as tennis courts, swimming pools, playgrounds, etc.
- Replace siding or windows
- Installation or replacement of access gates
- Upgraded security systems
- Elevator repair, construction, or replacement
- Smart building technology implementation
Can a Special Assessment be Charged to an Individual?
In most cases, special assessment costs are split evenly between members. It is a rare circumstance when a special assessment is charged to an individual member.
This might be the case if a member or a person in their household was solely responsible for significant damage to a common area. Should this happen, the member would need to pay the entire cost of repairing the damage for the benefit of all.
HOA Best Practices for Special Assessment Member Communication
Nobody enjoys being blindsided by an unexpected expense—especially when it’s a big one. HOAs should be sensitive to their members’ needs as some may be more susceptible to financial hardship.
In best practice:
- Consider individual members’ ability to pay. Offer payment plans for those who can’t pay in a lump sum.
- Provide plenty of advance notice. Special assessments can be an unwelcome surprise and may cause friction if they come out of the blue. Prioritize transparency, keep homeowners in the loop, and, when possible, give them plenty of notice an assessment is coming so they can plan accordingly.
- Call a meeting. Invite your members to a meeting to listen to your rationale for the assessment and allow them to ask questions and share their concerns. Member feedback helps boards understand the sentiment and listen to suggestions.
- Include your vendor partners in the discussion. Bring your contractor, engineer, etc., into the meeting to answer questions and demonstrate why and how the work will be done. Doing so will quell any trepidation about the job and reassure members that the project is in their best interest.
Is it Possible to Avoid Special Assessments?
In a perfect world, community members would never see a special assessment, go on paying their annual dues, and live happily ever after. While that’s not reality, there are ways for HOAs to manage their budgets, so special assessments are rare.
Long-term financial planning ensures that HOA boards are prepared for any eventuality. Income from dues is allocated partly to ongoing and day-to-day expenses and partly to the reserve fund. HOA reserve funds pay for anticipated expenses, like planned upgrades, road replacements, and so on. When reserves are adequately funded, they can also cover unexpected costs, limiting the need for a special assessment.
Reserve funding is informed by periodic reserve studies, during which engineers and inspectors go through the property, report on its condition and recommended repairs within a specific timeframe. For example, if the study shows that roofing replacement or sprinkler system upgrade will be required in three to five years, the board can plan accordingly so there is enough in the reserve to cover it when the time comes.
Of course, emergencies happen, and not all can be planned for. Special assessments may be part of living in an HOA-governed community, but their impact can be minimized with sound financial planning, good communication, and member engagement.
Final Thoughts
While special assessments are never ideal, they may be necessary to complete unexpected repairs or planned upgrades that benefit the community. The good news is most maintenance or repair-related assessments can be deducted from your income tax return. Be sure to speak to your tax professional to find out what you can deduct.
Speak to us today to learn more about HOA budgeting, special assessments, and member rights.
