Homeowners associations generally have the authority to levy a special assessment. This differs from regular dues, but not all homeowners know the distinction. When faced with an additional fee, the first instinct is to reject the charge. Boards can counteract this by understanding what special assessments are and their limitations.
What is an HOA Special Assessment?
A homeowners association special assessment is a one-time fee that an HOA charges on top of regular dues. It is assessed when the HOA requires extra funding. Common reasons include roof replacements, structural repairs, legal costs, or emergencies.
Condo associations are no strangers to special assessments either. Many condo communities collect this charge when the budget falls short or when an unanticipated expense arises. When the board levies the special assessment, condo owners must pay.
Regular Dues vs Special Assessments: Key Differences
There are two types of HOA assessments: regular and special. Regular assessments are more commonly known as regular dues or fees. Both types are billed by the association and can result in consequences if left unpaid.
That said, regular and special assessments have more differences than similarities. They differ in purpose, frequency, and predictability. Let’s discuss these below.
Purpose
Regular dues cover day-to-day operating expenses. This includes landscaping, insurance, utilities, maintenance, and management fees.
On the other hand, special assessments cover unexpected or large expenses. Examples include major repairs, emergency damage, or underfunded reserves.
Frequency
As the name suggests, regular dues are paid on a set schedule. Most associations charge them monthly, quarterly, or annually.
In contrast, a special assessment only arises as needed. There is no fixed schedule, and they don’t usually come up every year. The board only imposes them when necessary.
Predictability
Association boards set regular dues based on the annual budget. Because of this, dues are more easily predicted. Homeowners usually know the amount in advance, barring the occasional increase.
Unlike dues, special assessments aren’t as predictable. They often arise when the budget or reserves fall short. Homeowners may not always see them coming, especially when there’s an emergency.
California HOA Special Assessment Rules
Special assessments are subject to certain restrictions under state laws and the governing documents. In California, the law is clear on limitations, approvals, and exceptions.
HOA Special Assessment Limit
According to Civil Code Section 5605, an association can’t levy a special assessment that exceeds the aggregate of 5 percent of the current fiscal year’s budgeted gross expenses without approval from owners. This applies even if the governing documents say otherwise.
Member Approval
If an association wishes to impose a special assessment exceeding 5 percent, it must obtain membership approval. According to Civil Code Section 5605, a majority vote of a quorum is necessary to pass the assessment.
Voting occurs at a properly noticed meeting. It must take place by secret ballot in accordance with the association’s duly adopted election rules.
Limitation on Spending
Special assessments must only be spent for the approved purpose. For example, if a $10,000 assessment is allocated for roof repairs, the board can’t use these funds to buy gardening supplies. This rule applies even if there are any surplus funds.
If there is leftover funding, the board must either:
- Move the money into reserve funds for future major repairs relevant to the approved purpose,
- Ask homeowners for approval to use the money for something new, or
- Return the extra money to the homeowners.
Exceptions for Emergency Special Assessment
There is an exception to the 5 percent rule on special assessments. California law allows boards to impose a special assessment exceeding the 5 percent limit in an emergency.
According to Civil Code Section 5610, the following can constitute an emergency situation:
- Court Order. If a court says the HOA must pay money, the board has no choice. The HOA must collect money from homeowners to pay the judgment. Even if homeowners vote against it, the board still has to impose the assessment.
- Safety Hazard. If something on the property is dangerous, the HOA must fix it right away. This includes threats to people’s safety. The HOA can charge an emergency fee to cover the cost.
- Large and Unexpected Expense. If something costly happens that the board could not have predicted, then a special assessment is permitted. Before charging homeowners, the board must explain why the expense is necessary and why it could not have been planned for. They must put this in writing and share it with homeowners.
- Utility Problems. If essential services stop working (water, electricity, gas, or heat), the HOA must act fast. The board must start repairs within 14 days. If there is not enough money, the HOA can take out a loan and charge homeowners an emergency assessment to repay it. Again, the board must explain the situation in writing.
Court-Approved Special Assessment
Association boards are legally responsible for maintaining the common areas. They can’t ignore necessary repairs just because homeowners vote against paying for them.
If the community rejects a special assessment for an important repair, the board still has a duty to fix the problem. The board can instead go to court and ask for help.
The court can either:
- Allow a different way to hold a vote, or
- Approve a fair process to move things forward.
This usually happens when getting proper approval from homeowners is too difficult or has failed. The court route gives the board a low-risk yet legal way to proceed after a failed vote.
Once the assessment is approved, the HOA can collect the funds from homeowners and/or use the approved assessment to secure a bank loan. That loan can provide immediate cash to handle urgent repairs.
Not the First Option
While an important tool, a special assessment is not always the answer to an association’s problems. It is usually a last resort. If the board plans the budget accurately, keeps reserves healthy, and prepares emergency funds, it can avoid levying special assessments altogether. Still, if the need does come up, it is essential to understand the requirements, procedures, and limitations involved.
Optimum provides expert management services to community associations in Southern California. Call us today at (714) 508-907 or contact us online to learn more!
