Condo repairs: Sap reserves or levy special assessment?
proverbial rainy day?
First question: Does the board have the exclusive authority to sign a contract for that large of an amount, or does it need any kind of affirmative vote from the rest of the owners? Your bylaws will provide the answer.
Second, has the board considered other options? In oversimplified terms, there are three ways the board can amass sufficient money to pay for the projects.
The pro is that each owner doesn’t have to come up with out-ofpocket funds; the con is that your reserves will take a big hit or be depleted, as discussed above.
Typically, any such assessment can be spread out over a period of time, but contractors usually want to be paid promptly and cannot wait until the funds from the special assessment come in.
Many associations are turning to banks and other commercial lenders for a loan. The association’s bylaws must contain language permitting such a transaction because the lender will have a security interest on all of the units. Pros: Interest rates are currently low, and the association won’t have to tap into reserves or unit owners’ checkbooks. Con: The loan will be long term, and even if rates are low, the interest is still expensive.
And yet, there is one other option: a combination of all the above routes. For example, the condo could take $500,000 from reserves, issue a special assessment of $500,000 and get a loan for the balance to arrive at $2 million. Of course, the lender will want to review all of the association’s financials, and approve the construction company and its plans. Or the combination could factor in two of the three options. A good property manager and financial counselor should be able to build the best plan for your community association.