If you live in a community association, either a planned community or a condominium development, chances are that you pay an annual, quarterly, or monthly assessment to the community association. Regular assessment payments from homeowners are necessary for the community association to pay for things like, the maintenance of the common elements, vendors’ contracts, like a management company, and for insurance premiums.
While the Arizona Condominium Act does not have a limitation on assessments, the Arizona Planned Communities Act places a limitation on the amount the regular assessment can be increased by the association each year. ARS 33-1803(A) states in relevant part, “unless limitations in the community documents would result in a lower limit for the assessment, the association shall not impose a regular assessment that is more than twenty percent greater than the immediately preceding fiscal year’s assessment without the approval of the majority of the members in the association.” Neither the Arizona Condominium Act nor the Arizona Planned Communities Act contains provisions that specifically address “Special Assessments.”
A special assessment is an assessment that the community association levies against homeowners, in addition to the regular assessment, when the association does not have enough money in its operating or reserve account to fund a specific project, accident, or other unpredicted expense. The association’s governing documents, typically the Declaration of Covenants, Conditions and Restrictions (CC&Rs), usually contains a provision outlining the process that the association must adhere to in order to levy a special assessment. The board of directors for the association should review the requirements in the association’s governing documents before levying a special assessment. There may be specific notice requirements and voting procedures for the special assessment process and there may only be certain things a special assessment can be levied for. Most CC&Rs require a homeowner vote and a certain percentage of homeowners to approve the special assessment before the association is allowed to levy it.
While there may be unpredicted emergencies or situations that make it near impossible for an association to avoid a special assessment, there are things that the association and its board can do to limit the risk of a special assessment, including, but not limited to:
- The board should ratify a well thought out and planned budget for the year. When ratifying a new budget, the board should assess the needs of the community for the future, should review and analyze the association’s contracts and other expenses, and should plan for unexpected and miscellaneous expenses.
- The board can plan to have a reserve study completed and updated every 3-5 years by a reserve specialist. A reserve study identifies the planned replacement of major community assets. Having a well-funded reserve account reduces the need for special assessments.
- The board should review its insurance coverage with its insurance agent each year to make sure the association has adequate coverage in the case of an emergency or accident on the association’s property or within the association. The board should also ensure it has adequate D & O coverage and proper fidelity insurance. The board can ask its insurance agent to come walk through the community to evaluate risk areas and to adjust insurance accordingly, if needed.
- The board should consider adopting a “preventative” legal approach. The board should try to contact its attorney before an issue/situation escalates to litigation. Most associations do not budget enough legal fees in their yearly budget to cover the legal fees involved in a lawsuit.
While associations should try to limit the likelihood of a special assessment, there may be situations that arise, making the special assessment necessary. If a special assessment is necessary in your association, make sure your association adheres to the process and requirements outlined in your association’s governing documents. If you have a question about the process, contact your manager and attorney for assistance.