Don’t Spend HOA Money on Capital Improvements Until You Read This!

June 10, 2011

This week’s tip gives you a heads up before you approve funds to make capital improvements.

Some states place restrictions on boards’ ability to spend HOA funds to make capital improvements without owner consent. “In Florida, we don’t have a statue that limits expenditures for capital improvements, but governing documents frequently will,” says Dennis J. Eisinger, a partner at Eisinger, Brown, Lewis & Frankel PA in Hollywood, Fla., who represents more than 500 condo and HOA associations.

“If your documents don’t limit it, it’s likely to be a discretionary board decision, but near half the time, you’ll find restrictions,” Eisinger adds. “They might say, ‘If a capital improvement will cost more than X, it needs to be approved by a vote of homeowners.’ It’s usually $100,000 or 5 or 10 percent of the association’s budget. I had one governing document last week that said it was X dollars, but as increased by the consumer price index, which is a pain to calculate.”

However, there’s a twist under Florida law. “In the law for condos, but not in the HOA statute, if there’s a material alteration or improvement to the common areas, unless your documents provide otherwise, you need 75 percent owner approval of the alteration, unless your documents call for a lower vote,” explains Eisinger. “It has nothing to do with cost. Some improvements could even save the association money, like closing a restaurant or gym the association was subsidizing.”

Minnesota doesn’t govern spending on capital improvements by statute. “But many governing documents do impose restrictions on capital improvement expenses,” says Nancy Polomis, a partner at Hellmuth & Johnson PLLC in Edina, Minn., who advises associations. “They tend to be older communities, which to me is telling–that as we learned more about association governance, imposing those restrictions wasn’t a good idea. You can’t spend more than $5,000 on a capital expenditure without homeowner approval, and often it has to be at a meeting with a super quorum, which has horrific results. Boards may not get the approval to do something, but not being able to do it has a huge detrimental effect on the community.”

But what is a capital improvement? Find out in our new article, HOA Capital Improvements: What You Need to Know.