How to Avoid Special Assessments in Your Building: Three Ways to Generate Funds

It’s an all-too-common scenario where your building needs a new roof, windows, boiler, elevator or just about any big-ticket item and there isn’t enough money to cover these costs. Caught between a rock and hard place, you could simply levy a special assessment. But you can draw from that well only so often. “You can't just keep assessing because it creates resident fatigue,” says A.J. Rexhepi, a managing partner at the New York property-management firm Century. “Because of the number of mandated laws that have basically guaranteed co-ops must work on their buildings perennially, boards need to start looking at how to put money aside differently.”

 Skirting the dreaded “assessment,” are three ways that professionals suggest are worth considering: 1) using New York State’s annual Cooperative and Condominium Tax Abatement in a couple of creative ways; 2) negotiating contractor financing; and 3) imposing a capital-contribution requirement. Which one is right for your building? It depends on the circumstances.

 RIDING THE TAILS OF THE PROPERTY TAX ABATEMENT

The Cooperative and Condominium Tax Abatement, recently extended to 2026, reduces the property taxes of eligible co-op and condo owners in order to bring their taxes in line with those of single-family homes. Boards typically allocate the amount indicated by the Department of Finance for each unit as a credit on the shareholder’s monthly maintenance — and will often simultaneously assess back the entire amount on a per-share basis in order to raise funds. 

“This is something a lot of boards do,” says Marc Schneider, managing partner at the law firm of Schneider Buchel. “Let’s say the co-op has 100 apartments but 20 aren't eligible to receive the abatement” because they are not a primary residence, owned by an LLC or are investment properties. “So the board gives the credit to 80 apartments, but then assesses all 100 apartments for the abatement on a per-share basis as required. That means there are going to be 20 apartments that aren't going to get the benefit of the abatement money, but they're going to have to pay the assessment.” 

While shareholders who don’t receive the property tax abatement may find this method unfair, overlooking this opportunity to build a reserve fund is hard to do. To take it one step further, some boards are adding a dollar or two to each share and then assessing everyone for the abatement plus this add on. 

“Raising the assessment against the co-op abatement is an ideal way to balance a budget and minimize maintenance increases to shareholders,” says Carl Borenstein, president of Veritas Property Management. But, he cautions, “funding a smaller capital project this way is maybe an option, but not any type of larger capital project, because that would just be the equivalent of a regular assessment.” And that, Borenstein points out, would defeat the whole purpose of slipping in an assessment in a palatable, easily digested way.

 “Boards can make the assessment a little bit larger and utilize that differential for [small] capital improvements,” agrees Mitch Unger, controller and partner at the real-estate management company The Lovett Group. “Is that the best route to take?” he asks. “I think boards need to take the pulse of their shareholders and then make a decision.”

CONTACT YOUR CONTRACTOR 

Some contractors are willing to help finance your project, from providing interest-free loans to creating payment plans. 

That said, the contractor financing a project “full soup-to-nuts” is rare, says Avery Feldman, director of project management at Maxwell-Kates. “It’s not common for conventional projects,” he says, adding that he has only seen that arrangement when one contract covered design and construction and was awarded to a single team of one or more firms. 

Not quite soup to nuts, but the nearly 55-year-old K Restoration and Roofing worked with a client to provide some financing. “We have an Upper East Side building that is only capable of raising half of the contract funding within the first year,” says Dan Kilduff, director of business development. “We presented an option for fixed payments throughout the second year. We will complete the job in full within the first year, and the building will pay out the remainder during the second year at 0% interest. So that's just one example of offering an advantage to our clients,” he says.

Payment plans may vary, Feldman says, but they are often only offered on smaller projects, say between $600,000 and $900,000. Feldman points to one where the contractor “sends a payment requisition and when approved by the [the board’s] engineer, it will give a 2% discount if paid within 10 days,” 

At one Harlem condominium complex undertaking a window replacement project, the board was able to strike a different financing deal. “One vendor did say we could take two years to pay,” says a board member. “Also, it seems like we might get $400,000 from Con Ed through an energy-conservation program.”

STEADY AS YOU GO

Collecting maintenance or common charges is a very predictable way of keeping your building financially healthy, of course. But professionals point to another predictable way that can grow your reserve fund, and that’s setting up a mechanism called a capital contribution. 

“Buildings determine on average what they're going to need every 10 years or so,” explains Century’s Rexhepi, “and divide that number by 10.” As an example, a typical 100 unit building can expect to pay about a million dollars every decade on various capital projects. In this example, $100,000 would be raised each year by adding a fixed amount each month to maintenance or common charge fees, and then putting this capital contribution into reserves. “It becomes part of the budget and residents eventually get used to it,” says Rexhepi. This method relieves the board from having to impose unpredictable assessments.

How is a capital contribution different from an assessment? “It's not,” Rexhepi concedes. “It's just that assessments have got a start and an end, whereas a capital contribution to build the reserve fund for capital improvements doesn't have an end.”