VARIABLE ASSESSMENTS

QUESTION: I believe there is an error in your last week's newsletter. There is no difference between a 20% total increase in dues and a 20% increase on each variable assessment.

ANSWER: The variable assessments I referred to last week are also called "blended rates" because owners' assessments are assigned using a uniform rate for some budget items and a percentage rate for others. These kinds of assessment formulas make it impossible to simply increase everyone's assessment by a fixed percentage. For example, if the board increases the budget by 7%, some owners would have a 5 or 6 percent increase in their dues while others might receive a 7, 8 or 9 percent increase. The owner receiving the highest individual increase would be the benchmark for the overall increase. I should have made that clearer last week. Sorry about that. Fortunately, most associations use a uniform rate (everyone pays the same amount) or a pro rata rate based on the square footage of owners' units. In either of these cases, a 7% increase in the annual dues would be the same for all owners.

SPECIAL ASSESSMENT TO
SETTLE LITIGATION

QUESTION: We had a case in which an owner sued the association because of mold. The board agreed to a settlement that requires a large special assessment against the membership. Since the assessment is greater than 5% of the association's budget, is the board required to get membership approval?

ANSWER: In other words, does the settlement constitute an "extraordinary expense" as provided for by Civil Code §1366(b)? If it does, the board may impose the assessment without membership approval. If not, the assessment must be approved by the membership. The answer depends on the nature of the settlement. If it's is a garden variety settlement, I do not believe it qualifies as an "order of the court" and the assessment would, therefore, require membership approval. If the settlement is a stipulated judgment, or the acceptance of a statutory offer which results in a judgment, then it might qualify. You board should seek legal counsel before imposing the assessment.

HOW MANY
SPECIAL ASSESSMENTS?

QUESTION: If the 5% limit on special assessments is law, is there any limit on the number of special assessments a board may levy in a single year?

ANSWER: There is no limit on the number of special assessments, only on the total percentage. In other words, the board can levy five 1% special assessments in a single year, or one special assessment of 5%. Once the board hits an aggregate of 5% of the budgeted gross expenses for that fiscal year, the membership must approve any further special assessments (unless the additional assessments qualify as emergencies). See Civil Code §1366(b)

Very truly yours,
 
Adrian Adams, Esq.
Adams Kessler PLC