Condominium corporations in Ontario operate under the Condominium Act, 1998, which outlines the financial and governance framework for how condos are managed. One of the most important and often misunderstood financial tools available to condo boards is the special assessment.

If you serve as a director on a condominium board, you may already know that the board is responsible for setting the annual budget, collecting common expenses, and ensuring the reserve fund is properly funded. But what happens when those funds fall short and urgent or unexpected expenses arise? That is where a special assessment comes into play.

n this article, we will explain what a condo special assessment is, when and why it is used, the legal obligations under Ontario’s Condominium Act, and what your board should consider before levying one.

What is a Special Assessment?

A condo special assessment is a one-time charge levied by the condominium corporation’s board of directors against all unit owners. Unlike monthly common element fees that cover routine operating expenses and reserve fund contributions, a special assessment is imposed when the corporation needs additional money that has not been budgeted for.

Special assessments are typically used to:

• Cover emergency repairs or replacements (for example, roof failure or boiler breakdown).

• Address unexpected shortfalls in the operating budget.

• Fund major capital projects when the reserve fund is inadequate.

• Satisfy legal obligations, such as court judgments or compliance with new legislation.

In Ontario, the authority for special assessments comes directly from the Condominium Act, 1998. The Act requires boards to ensure the corporation has enough funds to carry out its obligations. When the budget or reserve fund is insufficient, a special assessment is one of the available remedies.

Special Assessments and the Ontario Condominium Act

Under the Condominium Act, 1998:

1. Budgeting and Common Expenses

   • Section 84 of the Act makes it clear that owners are obligated to contribute to the common expenses of the condominium corporation. These contributions are not optional. Unpaid assessments can result in a lien being placed against the unit.

2. Reserve Fund Requirements

   • Every condominium in Ontario must maintain a reserve fund that is used for major repairs and replacements of the common elements. Reserve fund studies are required every three years to project future costs. If the reserve fund is underfunded or an expense arises that exceeds projections, a special assessment may be necessary.

3. Board’s Fiduciary Duty

   • The board has a legal duty to act honestly, in good faith, and in the best interests of the corporation. If a shortfall exists, the board cannot ignore it. Levying a special assessment, while unpopular, may be the responsible and legally required decision.

Common Situations that Trigger Special Assessments

While every condominium is unique, here are some common situations in Ontario where boards may need to levy a special assessment:

• Unexpected Emergencies: A burst pipe floods the parking garage, requiring immediate and costly repairs.

• Reserve Fund Shortfalls: The reserve fund study underestimated the cost of window replacements, leaving the corporation without enough funds.

• Inflation and Cost Increases: Rising construction costs outpace reserve fund contributions.

• Legal Costs: The condominium becomes involved in litigation and must cover a significant legal judgment or settlement.

• Deferred Maintenance: Previous boards may have delayed projects to keep monthly fees low, forcing the current board to raise money quickly.

How are Special Assessments Calculated?

Special assessments are typically allocated based on each unit’s percentage of ownership interest, which is set out in the condominium’s declaration. This ensures the cost is divided fairly among unit owners according to their share of the common expenses.

For example:

• If the corporation needs $500,000 for a roof replacement, and an owner’s share of the common expenses is 0.8%, that owner’s contribution would be $4,000.

Boards can choose whether to collect the assessment as a lump sum or spread it out over several months. The Condominium Act does not require a vote of owners to approve a special assessment. It is a board decision. However, good governance requires transparency and communication with owners about why the assessment is necessary.

Communicating Special Assessments to Owners

One of the most challenging aspects of levying a special assessment is communicating the decision to owners. Since these charges can be significant, owners may feel frustrated, confused, or even blindsided.

Best practices for boards include:

• Provide Clear Explanations: Outline why the assessment is necessary, what it will fund, and why the reserve fund or budget cannot cover it. Reference your corporation’s reserve fund obligations to show how the funding shortfall occurred.

• Reference the Act and Reserve Fund Study: Demonstrating compliance with the Condominium Act and alignment with the reserve fund study builds credibility.

• Offer Payment Options: When possible, give owners the choice between a lump sum or instalments.

• Engage Professionals: Consider having the corporation’s auditor or property management company attend an information session to answer owner questions.

The Risk of Avoiding Special Assessments

While no board wants to impose a special assessment, avoiding one when funds are needed can create greater risks, including:

• Deterioration of Common Elements: Delaying repairs may cause further damage and higher costs in the long term.

• Legal Liability: Boards may be held liable for failing to meet their obligations under the Condominium Act.

• Financial Instability: Operating with insufficient funds can jeopardize the condominium’s ability to pay its bills.

• Reduced Property Values: Potential buyers may avoid a condominium with obvious maintenance issues or a reputation for financial instability.

Alternatives to Special Assessments

Before levying a special assessment, boards should explore alternatives:

1. Use of Reserve Fund: If the expense is eligible (major repair or replacement of common elements), it should be funded through the reserve fund.

2. Bank Loans: Some condominium corporations borrow funds instead of imposing an immediate assessment, with owners repaying through increased common expenses.

3. Phased Projects: Large projects can sometimes be divided into phases to reduce immediate financial pressure.

4. Budget Adjustments: Increasing monthly common element fees to build up reserves over time may reduce the need for special assessments.

Ultimately, however, if these alternatives are insufficient, the board must levy a special assessment to meet the corporation’s obligations.

Best Practices for Avoiding Special Assessments in the Future

Although special assessments are sometimes unavoidable, proactive financial planning can reduce the likelihood of needing them. Board members can adopt these best practices:

• Conduct Regular Reserve Fund Studies: Review the results carefully and adjust contributions as needed.

• Avoid Underfunding: Resist pressure to keep condo fees artificially low.

• Plan for Inflation: Update reserve fund assumptions to account for rising construction costs.

• Engage Experts: Work with engineers, auditors, and professional condominium managers to ensure accurate forecasting.

• Educate Owners: Help owners understand that healthy reserve funds and fair condo fees are signs of a well-managed condominium.

Key Takeaways

A condo special assessment in Ontario is a one-time charge levied by a condominium board to cover unexpected or underfunded expenses. It is authorized under the Condominium Act, 1998, and while often unpopular, it is sometimes essential to protect the financial and physical health of the condominium corporation.

For board members, the key is to approach special assessments with transparency, legal compliance, and a long-term perspective. By planning ahead, maintaining strong reserve funds, and communicating openly with owners, boards can reduce the frequency and impact of special assessments while fulfilling their fiduciary duty to the community.

If your board is struggling with reserve planning, budget shortfalls, or navigating special assessments, ICON can help. Learn how our team supports condominium corporations across Ontario with proactive financial management and professional guidance. Request a Proposal today and discover how we can support your community.