Who pays special assessments that come due after Settlement?

QUESTION: I represent the seller in a transaction that went under contract using the Offer to Purchase and Contract (form 2-T).  The owners association that regulates the development in which the property is located recently imposed an assessment that is payable in equal monthly installments over a period of two years.  We disclosed the existence of the assessment in paragraph 7(c) of the Contract.

The property is about to close and a disagreement has come up over who is responsible for making the monthly assessment payments after the property has closed.  The buyer agent says the seller has to pay the entire amount of the assessment at Settlement but it doesn’t sound right to me that the seller is responsible for payments that don’t come due for a year or more after the closing. What’s the answer?

ANSWER: The seller is responsible for paying the entire outstanding balance of the assessment.  We refer you to two sections in the Contract in support of this answer.  The first is the definition of a “Confirmed Special Assessment” in paragraph 1(n) of the Contract.  A “Confirmed Special Assessment” is “[a] Special Assessment that has been approved prior to Settlement whether or not it is fully payable at time of Settlement” (emphasis added).  This definition makes it clear that the character of a special assessment that has been approved by an owners association or governmental authority isn’t changed by the fact that the full amount isn’t payable as of the time of Settlement.

The second section of the Contract that is relevant in answering your question is paragraph 8(k).  Paragraph 8(k) provides that the “[s]eller shall pay all Confirmed Assessments, if any, provided that the amount can be reasonably determined or estimated” (emphasis added).  The assessment in question is, as noted above, a “Confirmed Assessment,” and its outstanding balance can be determined exactly by simply multiplying the amount of a monthly payment by the number of months remaining on the payment schedule.  Thus, according to paragraph 8(k), the seller is responsible for paying the outstanding amount of the assessment.

This situation underscores the importance of brokers understanding how the Contract allocates responsibility for payment of Proposed and Confirmed Special Assessments.  The “Seller Representations” section of the Exclusive Right to Sell Listing Agreement (form 101) includes a representation about the existence or absence of pending and confirmed special assessments (see paragraph 8(l)).  In completing this section of the listing agreement, listing agents should educate their seller clients about the meaning of those terms and why it matters, and question the seller carefully regarding the possible existence of any special assessments.