Even with all the planning, there are expenses HOAs may not be able to prepare for. For those, HOA special assessments may be needed. But how much can an association ask for in California, and is there a limit?
What is a Special Assessment?
Sometimes, an HOA’s budget running out is a common thing community boards encounter. Usually, funds from HOA fees and the allocated budget are sufficient to cover the costs of regular maintenance and other HOA functions. However, emergency situations do not generally fall under those costs.
To cover those costs, the HOA may decide to collect a one-time HOA fee called a special assessment.
But how is it different from HOA dues?
The HOA dues paid monthly by every homeowner is calculated based on the budget for the year. Meanwhile, special assessments are not collected frequently. It’s only done to cover special projects and expenses, while HOA dues fund the HOA’s day-to-day operations.
How are Special Assessments Calculated?
HOA special assessments are calculated directly based on costs. The HOA board needs to allocate the total special expenses as stipulated in the governing documents. If any limits are imposed by state legislation, they should also be accounted for.
However, typically, the HOA board simply distributes the cost equally among homeowners.
When to Levy an HOA Special Assessment?
Here are the common reasons why an HOA may decide to levy special assessments:
1. Lack of Budget
There are times when the HOA budget for the month has already been entirely spent. It may have already exceeded what the board anticipated for the year. This may happen if the HOAs are forced to make changes regarding their regular service providers. Sometimes they may need to change contractors if utilities have started charging more.
2. Homeowners Not Paying Dues
The HOA budget may also take a hit if a number of residents fail to pay it. The amount of funds collected may fall below the monthly target. If the collection couldn’t reach that target to cover all the funds because of unpaid dues, the HOA may need to levy special assessments.
3. Emergencies
While many don’t want to think of these, emergencies and accidents may happen. At times, man-made or natural disasters may affect the community. Recovery in those situations would need funding that is usually outside the HOA budget. For these, the HOA may levy special assessments to ensure that any emergency repairs are covered.
4. Major Upgrades and Capital Improvements
Major upgrades and capital improvements are some of the most common reasons for a special assessment. There are times when common areas need upgrades more than just regular repairs. Roof replacements, road repaving, and larger common-area upgrades may fall under this category.
Are HOA Special Assessments Legal?
Those who are new to HOAs or first-time homeowners in HOA communities may wonder if HOA special assessments are legal. After all, they already pay monthly fees; are they also obliged to pay special assessments?
Generally, special assessments are permitted under state law. However, it also outlines how HOAs can collect them and whether there are limits on them.
California HOA Special Assessment Rules
In California, Civil Code Section 5605 governs how HOAs may impose special assessments on their members. It outlines a special assessment cap, processes, and notification rules that boards need to follow when levying special assessments.
HOA Special Assessment Limits in California
California legislation limits how much the association can ask for in special assessments. The legislation caps special assessments that are collected without membership approval at 5% of the HOA’s gross expenses for the fiscal year. Any higher than this would call for a membership vote to pass.
Additionally, the law permits special assessments only for capital improvements. This means it needs to be used for improvements that are absolutely needed by the community, for significant improvements to common amenities, and for significant infrastructure upgrades. This also means the HOA can’t collect assessments for common expenses such as routine maintenance and day-to-day expenses.
Situational Exemptions
Depending on the situation, the HOA can impose special assessments even when the rule is exempt.
For one, emergency assessments are exempt from the 5% cap and can exceed it without a vote. However, only a few scenarios are counted as emergencies. These include court orders, and incident that put safety in jeopardy, and an extraordinary situation that the HOA couldn’t have predicted when creating the budget.
To levy emergency assessments, the HOA board needs to pass a resolution that includes findings justifying the exemption. This resolution needs to be distributed along with the notice of the assessment.
Notifying Residents
The California legislation governing special assessments also includes a notification rule. It requires HOAs to provide residents with a written notice around 30 to 60 days prior to the assessment deadline. This announcement should be sent via first-class or certified mail. It can also be sent using an approved electronic method. Casual emails or informal announcements are not counted.
The notification should include the reason for the assessment. It should also state the amount and the due date. If the HOA fails to send out these official notices within the indicated timeframe, the assessment is deemed unenforceable.
Voting Requirements
When a special assessment exceeds the 5% cap, the HOA needs a membership vote to proceed. Under the law, a quorum is required for this vote, and for California residents, that means more than 50% of the membership must vote. To approve the assessment, a majority of the quorum must vote in favor of the resolution.
Voting on HOA special assessments should be conducted by secret ballot and cannot be done by a simple show of hands.
What Happens When HOAs Exceed the 5% Limit Without A Proper Vote?
Collecting assessments that exceed the cap without the entire HOA membership’s approval is problematic. It’s against the law and opens up your HOA to legal action. Residents who are against the assessment can easily challenge it in court.
Staying Compliant With Special Assessments
An HOA special assessment helps the community keep up and fund large projects and unforeseen expenses. While the association is allowed to, it must also follow certain rules and regulations that protect homeowners. Staying compliant legitimizes the assessment and benefits both the HOA and its members.
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!
