Nobody likes to pay taxes, or in the community association world, high assessments. However, Boards need to make sure that they are setting assessments at an appropriate level to account for anticipated and potentially unanticipated needs and obligations of the community. Board members have a fiduciary duty to the Association which can include making sure that they are doing what they can to assure that the Association is properly funded.
Boards should do their best not to fall into the trap that can often be set by developers who may have set assessments at a lower amount in an effort to market homes. While assessments may be low at the birth of the community, future expenses will inevitably arise, and there may not be special assessment language that can be used to cover a particular type of expense. Assessments should not be kept too low simply because owners don’t like paying. It is shortsighted and does not put the Association in a position to perform their obligations.
I have seen a few cases recently where a community needs to begin replacing roofs. In some instances there are not enough funds in reserves to begin this work. I am often asked if a special assessment can be passed to cover the needed expense. The answer is that it depends. In North Carolina, special assessments are a creature of the Declaration for a community. There are no statutory provisions governing if or how a special assessment is imposed. In a few cases, I have seen where a special assessment may only be levied to defray the cost of a capital improvement on the common area. In the roof example, the Association is stuck because an owner’s townhome roof, while the maintenance obligation of the Association, is not common area. Therefore a special assessment is not going to be able to be used to fund the roof project.
We recommend that Associations be proactive setting reserves and getting reserve studies as close to developer turnover as possible. That way the community can estimate what their future maintenance obligations may be and can do their best to fund the Association appropriately at the start. A few years ago, I wrote a blog post discussing reserve funding, which can be found here.
While it may not be popular to raise assessments, setting assessments at a level that can help provide for future maintenance needs will be in the best interests of the Association and the community as a whole. Trying to figure out where the funds will come from when an expensive maintenance project is required can be a daunting task for Board members and managers.
If your Association is in need of assistance, you can reach out to any one of our experienced community association attorneys at Law Firm Carolinas.
Author: Adam Marshall
Articles have been Reprinted with permission from Black, Slaughter, Black.
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