When negotiating a purchase contract for a condominium, one possible point to settle is who pays the special assessment. While it can be the buyer or seller, one factor many consider when participating in this negotiation is the completion date of the project the assessment covers.
Visually, a condominium complex is similar in appearance to an apartment building, but the complex is not owned by one entity. Each unit in the complex may have a different owner. Legally speaking, it is not the unit an owner owns, but the airspace occupied by the unit, plus an undivided interest in common elements of the complex. A condominium association -- voted in by the owners -- manages the complex and oversees the repairs and maintenance of the common areas.
A special assessment for a condominium complex is a charge for an improvement or a repair. This pays for expenses not covered by the condominium association’s reserve account or normal budget. For example, if an unexpected storm destroyed the roof of the complex, and the condominium association’s insurance policy was insufficient to cover all the repair costs, the condominium owners each pay an equal portion of the additional amount -- in proportion to their ownership in the complex -- first voted into effect by the condominium’s board. These types of assessments can be controversial and financially painful for some property owners, who are suddenly hit with a large, unexpected bill.
Implications of Special Assessments
While the buyer and seller need to identify who pays the special assessment when negotiating a purchase contract, the buyer should also investigate the condominium association’s history of special assessments. Special assessments are sometimes a red flag, indicating the association has not effectively budged for needed improvements on the property. Lenders typically review special assessments when making a determination to approve or deny a buyer’s loan on a condominium purchase.
When negotiating the payment of a special assessment, one consideration is the completion date of the project. If the assessment is paying for a project not to take place until after the close of escrow, it might be more reasonable for the buyer to pay the assessment. If a portion of the assessment is already completed, it might be more reasonable for the seller to pay for the assessment, or for the completed portion of the assessment.
Failure to Pay Special Assessment
Once a special assessment is in place, ignoring the fee is not a solution for the buyer or seller. If the property owner fails to pay the special assessment, it becomes a lien against the condominium. A lien is a charge or claim against real property, giving the lien holder the power to force a sale of the property to collect the unpaid debt.
- "Modern Real Estate Practice"; Fillmore Galaty, et. al.; 2006
- “Master the Real Estate License Exams, 7th Edition”; Therese DeAngelis; 2010
Ann Johnson has been a freelance writer since 1995. She previously served as the editor of a community magazine in Southern California and was also an active real-estate agent, specializing in commercial and residential properties. She has a Bachelor of Arts in communications from California State University, Fullerton.