Special Assessments in Ontario Condominiums: What You Need to Know

Owning a condominium in Ontario comes with many advantages, but it also involves shared financial responsibilities. One such responsibility is the special assessment, which can sometimes be an unwelcome surprise for condo owners. Special assessments are additional fees levied by the condo corporation when unexpected costs arise that go beyond the regular maintenance fees and available reserve funds.

In this blog, we’ll dive into what special assessments are, how they work, what happens if you’re selling your unit, and the consequences if you don’t pay them.

What is a Special Assessment?

A special assessment is an extra charge imposed on condominium owners by the condo corporation to cover unforeseen expenses that exceed the corporation’s budget or reserve fund. These assessments are typically divided among the unit owners based on their share of the condo corporation, as defined in the condo’s declaration.

Common reasons for a special assessment include:

• Major repairs (e.g., roof or structural repairs)
• Emergency fixes (e.g., fire or water damage)
• Upgrading or replacing common elements (e.g., parking garages, elevators)
• Meeting new safety or building standards

In Ontario, every condominium corporation is required by the Condominium Act, 1998 to maintain a reserve fund that is used for such major repairs or replacements. However, when the reserve fund is insufficient—either due to poor planning, deferred maintenance, or unexpected emergencies—the condo board may levy a special assessment to cover the shortfall.

Why Do Special Assessments Happen?

Despite the mandatory reserve fund, there are several reasons why a special assessment might still be necessary:

1. Underfunded Reserve Fund: If the reserve fund is not adequately maintained or funded, there might not be enough to cover large-scale repairs or unexpected maintenance. This could happen due to poor financial planning or unexpected increases in repair costs.

2. Deferred Maintenance: In some cases, condo boards may opt to defer maintenance to keep condo fees low. This can lead to more significant and expensive repairs down the line, which can result in a large special assessment.

3. Emergency Repairs: Natural disasters, fire, or unforeseen damage to common elements like elevators, plumbing, or roofs may require urgent repairs that exceed the funds available in the reserve.

4. Upgrading or Meeting New Standards: Condos may need to upgrade facilities or meet new safety regulations that were not originally budgeted for. For example, fire safety upgrades or structural reinforcements may become mandatory and require significant funds.

The Role of Governing Documents in Special Assessments

It’s important to note that the governing documents of the condominium corporation—such as the declaration, bylaws, and rules—may contain specific provisions regarding how special assessments are handled. These documents outline the powers of the condo board and the process for levying special assessments. They may specify how assessments are divided among unit owners, the notice period required, and any limits on the board's authority to impose them.

Before a special assessment is levied, condo boards must follow the procedures outlined in these governing documents. If you’re unsure about your rights or obligations, reviewing these documents or consulting with a legal professional is a smart move.

A Toronto Special Assessment Case: A Harsh Reality

One recent example making headlines involved a Toronto condominium that levied a staggering $14 million special assessment. With just 15 days to pay, the condo’s 321 units were each charged between $30,000 to $42,500. Many residents, including seniors who saw their units as their retirement homes, were left in shock. Though the condo board promised not to enforce any liens before April, this provided little comfort for those struggling to find the funds.

The dire financial state of the condo was the root of this enormous assessment. The building required major structural repairs, but the finances were alarming. Last spring, the condo had only $5,000 in its operating fund and an astounding $1.75 in its reserve fund. To make matters worse, the corporation was $9 million in debt, with $8 million owed to private lenders and another $1 million owed to the City of Toronto for unpaid utility charges. The condo was paying a staggering $80,000 a month in interest alone.

What makes this case even more concerning is that this condo had already been under the supervision of a court-appointed administrator, showing just how deep the financial issues ran. Even under external management, the problems couldn’t be solved. This case serves as a stark reminder for condo boards and owners alike: condominium operations and financial planning are no joke, and neglect can lead to disastrous outcomes like this one.

Who Pays the Special Assessment if You’re Selling Your Unit?

If you’re selling your condo while a special assessment is in place or about to be levied, there can be some confusion over who is responsible for paying it. The answer largely depends on the timing of the sale and the terms negotiated between the buyer and seller.

1. If the Assessment is Levied Before the Sale

If the special assessment is issued before the sale is finalized, the seller is typically responsible for paying it. However, buyers and sellers can negotiate who will cover the costs as part of the purchase agreement. For example:

• The seller could agree to cover the entire assessment before the sale closes.
• The buyer and seller may agree to split the cost of the assessment.
• The buyer might take on the assessment in exchange for a reduction in the purchase price.

2. If the Assessment is Levied After the Sale

If the special assessment is issued after the sale is completed, the responsibility falls to the new owner. Once the property is transferred, any new financial obligations (including special assessments) belong to the buyer—as long as no mention of the special assessment was made in the status certificate or at any condo board meetings, indicating that an assessment was forthcoming but simply not yet issued. If such information is disclosed, it may become a point of negotiation during the sale.

3. Negotiating Special Assessments in the Sale

During the buying process, it’s crucial for buyers to review the condo’s status certificate, which provides insight into the financial health of the condo corporation, including any upcoming or pending special assessments. If there’s a likelihood of a special assessment being imposed, this can become part of the negotiation. Buyers can request that the seller covers the assessment or ask for a discount on the purchase price to account for future costs.

In fact, a recent Superior Court of Justice decision found that a condo buyer in Waterloo was exempt from paying their portion of a special assessment because the condo corporation had not clearly disclosed the possibility of the assessment in the status certificate. This ruling serves as a crucial reminder that buyers must thoroughly review this document to protect themselves from unforeseen financial obligations. If the potential for an assessment is not disclosed, buyers may have legal grounds to contest the payment.

What Happens if You Don’t Pay a Special Assessment?

Failing to pay a special assessment can lead to serious consequences for condo owners. Condo corporations in Ontario have legal avenues to ensure payment, and the repercussions can be severe.

1. Late Fees and Interest

If you don’t pay a special assessment by the deadline, the condo corporation can impose late fees and interest charges on the outstanding amount. These fees can quickly add up, increasing the total amount you owe.

2. Legal Action and Liens

If the special assessment remains unpaid, the condo corporation can place a lien on your property. A lien is a legal claim against your unit that must be paid off before you can sell or refinance the property. The lien can cover:

• The unpaid assessment amount.
• Legal fees incurred by the condo corporation.
• Interest and late fees.

In extreme cases, if the lien remains unpaid, the condo corporation may take further legal action, including foreclosure of the unit, forcing the sale of your property to recover the debt.

3. Impact on Selling Your Unit

Having a lien on your condo due to unpaid special assessments can significantly complicate selling your unit. The lien must be cleared before the sale can proceed, which means that you, as the owner, will need to pay off the assessment (plus any additional charges) before the transaction is finalized.

4. Damage to Credit and Reputation

Unpaid special assessments and legal actions can negatively impact your credit score, making it more difficult to secure loans or lines of credit in the future. It can also damage your reputation within the condo community, particularly if the unpaid assessment leads to legal battles with the condo corporation.

How to Protect Yourself from Special Assessments

While special assessments can sometimes be unavoidable, there are ways to minimize your risk and prepare for potential costs:

1. Review the Governing Documents: The condo's declaration, bylaws, and rules often contain crucial information about the condo board’s authority and the process for levying special assessments. Understanding these provisions can help you better anticipate potential assessments.

2. Review the Status Certificate Before Buying: Always request the status certificate when purchasing a condo in Ontario. This document will give you important details about the condo corporation’s financial health, including the reserve fund and any pending assessments. This step can be crucial in avoiding hidden financial surprises, as illustrated by the Waterloo court case.

3. Stay Informed and Involved: If you already own a condo, stay engaged by attending condo board meetings and reviewing the condo’s financial statements regularly. This can give you a heads-up about any upcoming assessments or financial shortfalls.

4. Maintain an Emergency Fund: Since special assessments can be unexpected, it’s wise to set aside funds specifically for such scenarios. Having an emergency fund will help soften the financial blow if a large assessment is levied.

Conclusion

Special assessments are an integral part of owning a condo in Ontario. While they can be a financial burden, understanding how they work, your responsibilities when selling a unit, and the consequences of not paying are critical to managing your financial responsibilities as a condo owner. By staying informed and financially prepared, you can avoid the stress and complications that often come with these unexpected charges.

When selling, make sure any potential assessments are disclosed and negotiated during the sale process to avoid disputes down the road. And if you’re facing a special assessment, the best approach is to pay it promptly or work out a payment plan to avoid legal action.