Condominium unit owners have ownership interests in their units together with an undivided interest in the common elements. These common elements generally include, but are not limited to, the lobbies, hallways, recreational rooms and parking garages of the condominium. In accordance with the Condominium Act, 1998 (the “Act”) unit owners are required to contribute to common expenses. A portion of the common expenses collected is used to pay for such things as security, management, maintenance and the repair of these common elements. Another portion is deposited into the corporation’s reserve fund, in accordance with the Act.  

Condominium corporations are required to establish reserve funds to ensure an appropriate amount of money is put aside for the purposes of carrying out major repairs or replacements of the common elements and assets of the corporation. If the amounts in a reserve fund are inadequate to meet the expenditures required, the board of directors may need to levy a special assessment and unit owners will be responsible for their share of the assessment.  

There are occasionally instances where unit owners may have recourse to an insurer to cover their share of the assessment. Some examples of these occasions are discussed below.  

Most real estate lawyers will recommend that purchasers buy title insurance when purchasing a condominium unit. Title insurance is intended to offer purchasers protection against a number of factors, including special assessments that may not have been disclosed in the Status Certificate.  

We have all heard the story of purchasers being faced with a special assessment after they completed the purchase of their unit. Even though the corporation was aware that a special assessment might be levied or was aware of circumstances that might result in the need for a special assessment in the near future, this information was not disclosed in the Status Certificate. In these circumstances, title insurance should compensate the purchasers for their portion of any special assessment levied.  

There are other circumstances where an insurer may be responsible for an owner’s share of a special assessment. A unit owner may have coverage for a special assessment as part of the owner’s insurance policy. This coverage will benefit a unit owner in circumstances where a condominium corporation suffers an insured loss, the insurance proceeds are inadequate to cover the costs, and the corporation levies a special assessment for the difference. This would only occur in very unusual circumstances.  

An example would be the case of a condominium corporation that incurred environmental clean-up costs because of a heating oil leak into the common elements. The town home units in this condominium had oil tanks that were buried in the common elements and which serviced each individual unit’s furnace. Pipes ran through the concrete basement floors of the units from the heaters to the oil tanks. As a result of a pipe break, oil seeped into the ground and the resulting environmental clean-up cost was over $300,000.  

Over the years several of these pipes had broken and the corporation had taken out the maximum available environmental coverage in the amount of $10,000.00. The remainder of the clean-up cost was paid for by way of a special assessment. Unfortunately, when this happened, no one considered whether the unit owners’ insurance policies included special assessment coverage. When this enquiry was finally recommended, the deadline for making a claim had long passed. As it turned out, all but one of the unit owners had special assessment coverage and had the right advice been given, then unit owners’ insurers would have paid their proportionate shares of the special assessment.

The above-noted scenario highlights an important point of which all unit owners should be aware. If the corporation suffers an insured loss, and if it does not have adequate insurance to cover the resulting damage, it may levy a special assessment to cover the costs. Unit owners who have special assessment insurance coverage, as part of their unit owners’ insurance policy, will be entitled to claim their portions of the special assessment from their insurers.

It is important to note that special assessment insurance only applies in circumstances where the loss itself is insured, the corporation’s insurance coverage does not adequately cover the loss, and a special assessment is levied to pay for the costs. Although these circumstances are uncommon, we strongly recommend that all unit owners contact their insurers to ensure that they have special assessment insurance coverage. The cost is minimal; the benefits could be significant.