Determination of "Maximum Assessment"

I am a former Board President and current homeowner of my HOA. It has existed since 1975 and still operates with the the original CC&R. Our CC&R states the following about annual assessments:

ARTICLE IV - COVENANT FOR MAINTENANCE ASSESSMENTS
Section 3. Maximum Annual Assessment. Until January 1 of the year immediately following the conveyance of the first Lot to an Owner, the maximum annual assessment shall be Three Hundred Forty-Eight Dollars ($348.00) per Lot, on Class A Lots.
(a) From and after January 1 of the year immediately following the conveyance of the first Lot to an Owner, the maximum annual assessment may be increased each year not more than five percent (5%) above the maximum assessment for the previous year without a vote of the membership.
(b) From and after January of the year following conveyance of the first lot to an owner, the maximum annual assessment may be increased above five (5%) percent by vote of fifty-one (51%) percent of each class of members, who are voting in person, or by proxy, at a meeting duly called for this purpose.
(c) The Board of Directors may fix the annual assessment at an amount not in excess of the maximum.

We have always in practice interpreted this to mean that a Board can only increase the assessment by 5% over the previous year's assessment without an HOA vote. I am wondering if that has been misinterpreted and would like another opinion. Here is my reasoning:

In 1975, the first unit was sold and the "maximum assessment" was set at $348. The "maximum annual assessment" then for 1976 was $348 + 5% = $365.40, regardless of the amount actually assessed. Then the maximum assessment for 1977 was 5% over the "maximum annual assessment" for 1976, which was $365.40. So does the maximum assessment increase 5% each year without regard to the actual assessment, unless the HOA votes for it to go up more than 5%?

The catch to that interpretation is that it says the maximum "may" be increased each year. However, nowhere does it say the Board is to set the "maximum assessment" and nowhere does it say the actual assessment in a given year becomes the maximum assessment for that year. Paragraph (c) shows a distinction between the actual "annual assessment" and the "maximum".

What are anyones thoughts on this? How would it be interpreted legally?

Thanks for the reply, ElleN. In answer to your question, there is nothing in the CC&R the final interpretation of an ambiguity. And I agree with you about ambiguities going against the drafter in this case being questionable. Also, in effect, the owners are the HOA.

Most of us aren't attorneys, so you need to go to a private attorney to get a better interpretation. That said, our documents also set the maximum increase at 5% above the current year. If the board felt the new assessments should be higher next year, say, 7%, that would have to be approved by the homeowners. As long as the annual increase didn't exceed 5%, homeowner approval wouldn't be necessary.

The board doesn't HAVE to increase the amount at the 5% rate every year. During my 10 years on the board, we had two or three years where we kept the current rate, and other years were about 2%.

That's my interpertation, so take it for what's its worth. You say how long you've lived in your community or how long you were on the board, but you also know costs have increased a helluva lot since 1975. A 5% increase in 1975 was $17 (I rounded it off) and depending on what you have in common areas and reserves, that may or may not be enough.

The board should be explaining why the assessment is increasing and what's being done to control costs - I would think there should have been some years where the assessment could have been held at the current rate, instead of just increasing the assessment because the documents say you can.

SheliaH, thanks for your reply. I have lived at our HOA for 34 years and was on board for about 8 years, president, maybe 4 years, but that was 10 years ago, or so. We have always interpreted our document as yours is apparently written, a limit of a 5% increase over last year's assessemnt. But I am reconsidering how our document should be interpreted.
I am not currently on the Board, nor have I offered this interpretation to our Board, who are currently proposing a 20% assessment increase. I do not favor that large an increase, but I also believe that if our document gives the Board the right to do this, that should be honored.

agree

Ugh--sorry the 5% limit's in my HOA's CC&Rs.

Our BOD is able to increase annual dues as much as it wants, but our owners can call a Special Meeting and 51% of ALL OWNERS can reject the increase there is a fall back of a 5% increase. But as said, the 5% is a fall back.

a) From and after January 1 of the year immediately following the conveyance of the first Lot to an Owner, the maximum annual assessment may be increased each year not more than five percent (5%) above the maximum assessment for the previous year without a vote of the membership.”

The maximum annual assessment was established in year 1. Each January 1, the Board may increase the MAXIMUM ANNUAL ASSESSMENT by 5% of the previous years maximum annual assessment.

My reading is the maximum annual assessment could be independent of a fee increase - in other words, the assessment charged could go up zero and the board can move the maximum 5% each year above the amount charged the previous year.

That’s why I read the section as the maximum is separate from the actual assessment passed. If the maximum assessment was $348 in 1975 and the Board increased the maximum by 5% a year, the new maximum assessment would be over $3,600 vs an inflation value of $2977.

If the Board never voted to increase the maximum annual assessment, the maximum remains $348.

I agree special assessments, especially large special assessments approved by owners, throw another wrench into interpreting this covenant in a logical way.

You brought it up.

It's clear there's a 5% maximum cap on your dues rate increases for each new budget year. When the HOA approves the budget, it sets the MAXIMUM dues rate to be paid by each owner without their direct approval. It's meant to lock the HOA, not allow the HOA to bank theoretical capacity - in terms of percentage points - to increase revenue by greater than 5% per year without owner approval. "MAXIMUM" protects the homeowner and provides payment stability alongside the 5% cap.

"Maximum" is speaking to the dues payer.

Our governing documents allow the Board to remove the master insurance premium increase from the 5% maximum Board increase per year. This year our assessment went up a total of 8% without an owner vote.