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June 5, 2007
Emergency Assessments - When Are They Justified?
Here is a question from a reader about emergency assessments.
"I purchased a condo 3 years ago and the Board is always [sic] doing special assessments. They are in the process of repairs some parts of the building such as patios, balconies and painting the entire building and they call this an Emergency Special Assessment. They want each owner to pay an assessment that is over $3000 and some of the people dont have this money and pay the regular assessments too. Can they do this?"
There are specific requirements for the imposition of emergency assessments in California. They are:
(b) Notwithstanding more restrictive limitations placed on the board by the governing documents, the board of directors may not impose a regular assessment that is more than 20 percent greater than the regular assessment for the association's preceding fiscal year or impose special assessments which in the aggregate exceed 5 percent of the budgeted gross expenses of the association for that fiscal year, without the approval of owners, constituting a quorum, casting a majority of the votes at a meeting or election (by written mail ballot). For the purposes of this section, quorum means more than 50 percent of the owners of an association. This section does not limit assessment increases necessary for emergency situations. For purposes of this section, an emergency situation is any one of the following:
(1) An extraordinary court-ordered expense;
(2) An extraordinary expense necessary to repair or maintain any part of the CID for which the association is responsible where a threat to personal safety is discovered;
(3) An extraordinary expense necessary to repair or maintain any part of the CID for which the association is responsible which could not have been foreseen by the board in preparing and distributing the pro forma budget under Section 1365 above.
Prior to imposition of this emergency assessment, the board must pass a resolution reflecting written findings about the need for the assessment and why the expense could not reasonably be foreseen. The board must distribute the resolution to the owners with the notice of assessment.
(4) An extraordinary expense in making the first payment of the earthquake insurance surcharge pursuant to Section 5003 of the Insurance Code.
My Comment: The intent of these sections of the assessment statutes is to assure that associations have adequate authority to impose assessments "sufficient to perform the obligations" imposed on the association. The rights and limitations to increases and imposition of assessments without a vote of the membership are the legislature's view of what's reasonable, no matter what appears in the governing documents. The statutory provisions control. As for understanding subsection (b), most HOA attorneys interpret this section (in its poorly worded condition) to mean that an association may increase regular assessments up to 20% of the regular assessment for the preceding year without a vote of the membership, even if the governing documents provide stricter limitations. Likewise, the association may impose a special assessment or special assessments that do not exceed 5% (in the aggregate) of the budgeted gross expenses for that fiscal year without a vote of the membership. If the association needs more money to pay expenses, approval of a majority of a quorum of the membership is required (a quorum being more than 50% of the owners) either at a meeting duly called, or a written ballot sent by mail that satisfies the written ballot requirements.
“Emergency” needs are an exception, as described. However, the emergency assessments need to qualify under the descriptions provided, must be for repair costs not known or anticipated at the time of the budget preparation. So the question is, do the repairs and maintenance that are necessary based on safety, a hazard, or other subject matter embodied in the statute?
Posted by Beth Grimm at June 5, 2007 10:06 PM