3.11 Assessments

• Library: South Carolina Community Association Law: Condominiums and Homeowners Associations (SCBar) (2019 Ed.)

3.11 Assessments

The SCHPA requires that all co-owners contribute pro rata to the expenses of administration, maintenance, and repair of the common elements.²⁶⁰ The formula used for calculating ownership share is to be a percentage share based on the value²⁶¹ of each unit in relation to the value of the whole property.²⁶² Ownership share is clearly tied by the act to liability for common expenses.²⁶³ The SCHPA also states:

No co-owner may exempt himself from contributing toward such expenses by waiver of the use or enjoyment of the common elements or by abandonment of the apartment belonging to him.²⁶⁴

This is a provision common to Condominium Acts in other jurisdictions. One of its implications, courts have said, is that there is no "self-help" remedy in condominiums.²⁶⁵ Thus, an owner may not withhold all or a portion of an assessment for an alleged failure of the council to perform some duty or responsibility, and may not assert a failure to perform by the association as a defense to an action for nonpayment.²⁶⁶ That an owner may disagree with the use of association funds is also not a proper basis for refusing to pay a valid assessment.²⁶⁷ Further, it has been said that the duty of the owner to pay assessments is not contingent on the council's obligation to repair or maintain the common elements.²⁶⁸ One court has even held an owner may not withhold payment of an assessment for an alleged failure of a council of co-owners to maintain common elements when that failure resulted in property damage to the owner.²⁶⁹ Other courts have held that an owner may not refuse to pay assessments because members of governing board were allegedly not properly elected.²⁷⁰ And it has been held that an owner may not refuse to pay an assessment where the assessment is for a judgment resulting from arguably unauthorized acts by the officers and directors of the association.²⁷¹ The council needs to follow any assessment procedures in the documents, but even if an assessment may have been improperly made, if the owner pays it — in effect acquiescing to it — the council has a defense to the charge of having improperly levied the assessment.²⁷² The obligation to pay assessments is also not affected by the manner in which the unit owner acquired title.²⁷³

Sometimes an owner who is delinquent in paying assessments will offer a partial payment. There doesn't appear to be anything in the SCHPA that would prevent a council of co-owners from accepting partial payment or from establishing a payment plan. However, since an owner cannot exempt him or herself from paying his or her share of the common expenses,²⁷⁴ the council cannot accept less than full amount due as complete payment. Thus, if a co-owner pays only part of what he or she owes and writes on the check "payment in full" or some other similar language, the council should reject it.²⁷⁵ If it does so, however, it should document its action and the reasons for it.²⁷⁶

Some Acts provide for or permit an exemption for the development corporation. It has been held that in the absence of such a provision, a developer is liable for assessments on the units it owns,²⁷⁷ even for assessments by the council to be used for bringing suit against the developer.²⁷⁸ There is nothing in the SCHPA to suggest that a developer may be exempt from any assessment but, there is also nothing in the Act that specifically precludes a master deed or lease from exempting a developer from paying assessments. However, any such provision, even a limited one, could well be found contrary to the statute quoted above. At the very least, it would be strictly construed against the developer.²⁷⁹ Where there is no basis for excusing the developer from the obligation to pay assessments, the failure to collect them may constitute a breach of fiduciary duty.²⁸⁰

Assessments, needless to say, are a matter of great concern to owners. The assessment is the equivalent of a property tax, and, it has been said, the power to levy this "tax" is the power of the majority to affect the standard of living of the minority.²⁸¹ It should come as no surprise then that assessments have generated considerable litigation,²⁸² or that some condominium acts or documents attempt to protect owners from extraordinary increases in annual assessments or special assessments.²⁸³ While an owner may successfully challenge the imposition of an unpaid assessment for failure of the council to follow the master deed, courts will not order a refund of previously paid assessments.²⁸⁴

Assessments may be characterized as falling into at least three categories: routine assessments, those based on an annual budget and collected on a regular basis; special assessments, those levied for emergencies or capital improvements; and, reserve assessments, those collected to pay for repairs or replacements that are anticipated (e.g., roof replacement or painting).

A. Routine Assessments

The routine or annual assessment is levied to pay for expenses of maintenance, operation, management, and repair of the common elements. Small improvements may also be paid for out-of-routine assessments. If there are reserve accounts, part of the routine assessment will have submerged within in it funds for the reserves. The term "routine" is used here because the assessment will ordinarily be collected on a regular basis, usually monthly or quarterly. It is based on an annual budget, and will remain the same for each collection period under ordinary circumstances. Owners are therefore able to anticipate the routine assessment as a part of their personal budgets. While there may be debate over the size or wisdom of particular budget items, generally the routine assessment does not bring the council much difficulty, barring procedural irregularities in making the assessment.

B. Special Assessments

The SCHPA nowhere mentions special assessments, however, it does provide that the co-owners are bound to contribute to the expenses of administration and of maintenance and repair of the general common elements and "toward any other expense lawfully agreed upon."²⁸⁵ The SCHPA also does not specifically authorize councils of co-owners to levy special assessments, but it does require that the bylaws provide for the "manner of collecting from the co-owners for payment of the common expenses."²⁸⁶ Special assessments often generate trouble for governing boards and are frequently challenged. Therefore, the bylaws should explicitly empower the council to levy and collect special assessments,²⁸⁷ and set forth the process by which a special assessment can be adopted. Special assessments are less likely to be challenged when there is a clear procedure that involves an open meeting in which co-owners can participate — and perhaps even vote — and all the procedural requirements are carefully observed. Once a special assessment is successfully levied and collected, it will fall to the governing board to disburse the funds, and the board should be aware that the council may have a fiduciary duty to use funds from a special assessment for the purposes for which they were assessed.²⁸⁸

Special assessments have different characteristics depending on limitations in the condominium documents or practices of particular communities. Some condominiums, for example, levy special assessments every year. In others, no limitations on the assessments exist, and they are used for everything from emergency repairs to luxury improvements. There are also condominiums in which the documents severely limit special assessments, both procedurally and substantively, requiring approval by the owners or limiting special assessments to use in emergencies only or to repair or replacement of the common elements. In such instances the possibility of challenge to a special assessment is increased,²⁸⁹ possibly impairing the ability of the council to meet budget shortfalls.²⁹⁰ A frequent distinction is between capital improvements and replacement and repair, with the procedural hurdles for the former usually being higher.²⁹¹

Special assessments levied for improvements are particularly likely to engender opposition. In Tiffany Plaza Condominium Ass'n v. Spencer²⁹² the declaration limited assessments for improvements as follows:

(1) Once the condominium improvements were completed, no additional improvements or alterations to the common elements could be made without the prior written approval of record owners of units.
(2) If a proposed alteration or improvement to the common elements were approved by not less than 75% of owners, the changes could be undertaken as long as they did not interfere with the rights of dissenting owners and those owners were relieved of the initial cost.

A rock revetment proposed for construction between the condominium and the water line of the Gulf of Mexico was challenged under these limitations. The association planned to assess all owners after more than 75% gave their approval. Dissenting owners argued they were immune from assessment under the terms of the declaration. The association countered that the project was not an improvement, but maintenance, repair, or replacement of common elements for which all owners could be assessed. The court decided the declaration did not intend for owners to be relieved of an assessment for alteration or improvement reasonably necessary for maintenance, repair, or replacement of common elements. Siding with the association, the court said, "...if in the business judgment of the association, alteration or improvement of the beachfront by addition of a rock revetment would protect the beach from damage and the necessity of subsequent repair or replacement, then the cost should be borne equally by all unit owners."²⁹³

Apparently, the primary question to be addressed where the documents are similar to those in Tiffany is whether the assessment is reasonably necessary to protect the common elements from future maintenance expenses. Improvements for aesthetic reasons or...