Special assessments are sometimes necessary to cover unanticipated or underbudgeted expenses. If imposed in accordance with the applicable legal requirements, special assessments may be collected in the same manner as regular assessments. Too often, however, the first we (as the association's legal counsel) hear of an association's imposition of a special assessment is when the association turns to us for assistance in collecting an unpaid special assessment, and when we review the matter, we discover that the special assessment was not lawfully imposed. This complicates collection efforts and sometimes leads to associations having to redo the entire process of imposing the special assessment, which can be costly in terms of both time and money. Accordingly, it's important to understand the legal requirements applicable to imposing special assessments, and it can save associations a lot of trouble in the long run to consult with legal counsel early in the process in an effort to avoid procedural pitfalls that could create obstacles to collecting the special assessment if any owners fail to pay.
Civil Code §5605(b) prohibits boards of directors from imposing “special assessments which in the aggregate exceed five percent of the budgeted gross expenses for the association for that fiscal year without the approval of a majority of a quorum of members.” Therefore, if the total amount of a special assessment would be equal to or less than 5% of the association's budgeted gross expenses for that fiscal year, then it would not require approval of the owners, and the board could vote to impose the special assessment as a noticed agenda item at an open meeting. This assumes that the board has not already imposed any other special assessments during that same fiscal year that would result in the special assessment “in the aggregate” exceeding 5% of the budgeted gross expenses for that fiscal year.
For proposed special assessments that do exceed 5% of the association's budgeted gross expenses for the year and therefore require the approval of a majority of a quorum of members, Civil Code §5605(c) provides that for the purposes of Section 5605, a “quorum” means more than 50% of the members. As such, regardless of whether an association's governing documents provide for a lesser percentage of the members in order to meet quorum, for purposes of approving a special assessment, Civil Code §5605(c)'s definition of quorum will control. That means that approval of a special assessment that exceeds 5% of the association's budgeted gross expenses for the year will require more than 50% of the membership to cast ballots in order to meet quorum and, as long as a quorum has been achieved, at least a majority of the ballots actually cast must be in favor of the special assessment.
Importantly, Civil Code §5100(a)(1) includes “elections regarding assessments legally requiring a vote” as one of the types of votes that must be conducted in accordance with the statutory secret ballot voting process. Thus, any membership vote to approve a special assessment that exceeds 5% of an association's budgeted gross expenses for the year would need to be conducted pursuant to the statutory secret ballot voting process. Compliance with the procedural requirements of the statutory secret ballot voting process is one area where associations can struggle without appropriate guidance.
Whenever a special assessment is imposed, whether by the board (if less than 5% of the association's budgeted gross expenses) or by a vote of the owners, Civil Code §5615 requires that notice of the special assessment must be provided to all owners by individual notice not less than 30 days nor more than 60 days before the special assessment becomes due. This is a critical step where, on more than one occasion, we have seen associations fail to provide this notice at all, fail to provide it in the manner required for individual notice, or fail to provide it within the required window of time.
Notably, there are very limited “emergency situations” described at Civil Code §5610 for which boards can impose emergency assessments without a vote of the owners even if the amount would exceed 5% of the budgeted gross expenses for the fiscal year. However, the “emergency situations” are narrowly defined, and most situations do not fall within the statutory definitions. Documentation is key to establishing that the need for an emergency assessment is justified under the statutorily-defined “emergency situations,” and we would always recommend consulting with legal counsel prior to attempting to impose an emergency assessment.
The statutory procedural requirements for imposing a special assessment can be burdensome, but failure to comply with those requirements can impair an association's ability to legally collect the special assessment. Consulting with legal counsel at the outset can help to ensure that the special assessment is lawfully imposed and, therefore, collectable in the event that any owners fail to pay the special assessment.