As appealing as the many conveniences of condo living may be, from shared maintenance responsibilities to desirable amenities, the possibility of a special assessment looms over many owners, and for good reason.
A special assessment is an additional charge imposed on condo owners by the condo corporation when extra funds are needed. These charges are typically used for unexpected repairs, maintenance, or to cover shortfalls in the reserve fund. For example, they may be required for roof replacement, lobby renovations, or emergency repairs not covered by the condo’s master policy.
While it’s possible to live in a condo for years without ever encountering a special assessment, if one is issued, it can come as a financial shock, especially if you wrongly assume your condo insurance policy will cover it. To avoid surprises and financial strain, it’s important to understand how special assessments work and the role of insurance so you can plan ahead and be better prepared if one occurs.
When are special assessments on condos issued?
Your condo corporation’s master insurance policy and reserve fund go a long way in protecting you, a condo unit owner, from unexpected expenses. However, when these resources fall short or don’t apply to the issue at hand, a special assessment may be issued to cover the necessary costs. Here are the common reasons why a special assessment might be required:
- Insurance doesn’t apply: Your condo corporation’s master insurance policy typically covers sudden and accidental damage, such as fire, as well as liability. However, it does not cover repairs for wear and tear on the building, upgrades to aging infrastructure, or general maintenance. In such cases, a special assessment may be issued.
- Insurance isn’t sufficient: When a claim exceeds the coverage limits of your condo corporation’s master insurance policy or certain exclusions apply, the remaining costs may be passed on to unit owners, like yourself, in the form of a special assessment.
- The reserve fund lacks the necessary funds: The reserve fund, built at least in part through condo fees, can be temporarily exhausted due to higher-than-expected repair costs, inaccurate financial projections, unforeseen emergency events, or, worse, mismanagement. When this happens, a special assessment may be issued to cover the shortfall.
Once a special assessment has been issued, there’s little you can do to avoid it. While rare exemptions exist, most owners must either pay the amount in full or explore financing options. To fully understand your obligations, look at your condo’s declaration and bylaws, as they will include important details on how special assessments are handled and what the master insurance policy covers.
Does condo insurance cover special assessments?
No, condo insurance does not cover special assessments imposed for unexpected repairs, regular maintenance, or shortfalls in the reserve fund, meaning that you need to budget for and be prepared to pay these costs yourself.
However, there is something called loss assessment coverage. Given the similarity in names, it’s easy to confuse them, but the key difference is that loss assessment coverage is designed to help cover assessments issued due to insured losses, such as fire damage or liability claims. It does not cover special assessments related to repairs, maintenance, or reserve fund shortages.
For example, if your building’s roof is damaged in a fire and the condo corporation must pay the deductible for the claim filed with their master insurance policy, a special “loss” assessment may be issued, splitting the deductible among the unit owners. The same may also happen if the damage exceeds the condo corporation’s master insurance coverage limit(s), requiring additional funds from the unit owners to cover the difference.
Depending on where you live in Canada, your condo corporation may have funds set aside for this purpose. For instance, in Quebec, condo corporations are required to maintain a separate fund known as a “self-insurance fund.” Unlike the reserve fund, this is designed to cover master policy deductibles and reduce the likelihood of loss assessments being issued to unit owners.
In regions where this is not required, though, condo owners may appreciate the added peace of mind that loss assessment coverage can provide. Just remember that it does not always come standard, so you may need to specifically add it to be fully protected.
Next steps: Get loss assessment coverage for less
While it’s important to save and prepare for potential special assessments, buying condo insurance with loss assessment coverage can help lessen the burden. Not to mention that you could save up to 29% on condo insurance with YouSet, thanks to our advanced algorithms which automatically compare quotes from multiple insurers, apply exclusive discounts, and find you the best possible price.