Having now survived one of the worst winter seasons on record here in New Jersey, with many condominium and homeowners associations’ snow removal budgets well-exceeded, the question now faced by many association governing bodies is: “How will we pay these bills?”
Homeowner associations in New Jersey have available to them various ways to generate revenue to pay their bills, the main one of course is the ability to impose and collect annual common expense assessments from their members. Traditionally, association operating budgets are developed in the Fall based on what the association’s expenses are reasonably anticipated to be for the upcoming fiscal year, and then implemented on the first of that year. Not many association boards in New Jersey accurately projected what their upcoming snow removal costs were going to be for 2014, thus creating budget deficits of varying degrees. Some associations experienced minor budget deficits that could be covered by other under-budget line items or “snowy day” funds. But many others were so over budget that there existed the danger of not being able to pay its bills going forward, so those boards were required to impose further assessments against their members on an emergent basis.
But are those further assessments considered “special assessments” or “added assessments”? There is a BIG difference. Most sets of association governing documents (Master Deed, Declaration of Covenants, or By-laws) authorize an association governing board to adjust or increase the amount of the annual assessments, during the fiscal year, whenever the Board is of the opinion it is necessary to do so in order to meet unanticipated increased operating or maintenance costs, or financial emergency. This is traditionally called an “added assessment”, and as such does not require the voting approval of the membership of the association. Likewise, most sets of association governing documents provide for the imposition of a “special assessment” upon the members, which traditionally is used to defray, in whole or in part, the cost of any reconstruction, unexpected repair or replacement of an existing common element not determined by the Board to constitute an emergency or immediate need and for which funds in reserve are inadequate. Importantly, most governing documents also provide that if this special assessment is greater than a certain percentage of the common expense assessment in the last annual budget, or if it is greater than a specific threshold sum, then the Board must first obtain the voting approval of the entire membership, usually a super-majority, before such an assessment can be imposed.
It is important for association boards, and the members of their associations, to understand the difference between these types of assessments and how they are defined in their governing documents. Of course, it is always a good idea to seek the advice of the association’s professionals (lawyers, accountants and managers) before imposing any added or special assessment.