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How to approve and pay for a condominium capital improvement
by: Rob Samouce
So your condominium association is thinking about putting in a new bocce court, a new swimming pool, or updating the social room. What approval of the membership is needed and how is the association going to pay for it?

All of these capital improvement changes are typically considered material alterations or substantial additions under Chapter 718, Florida Statutes (the Condominium Act). Changing the look, use or function of a particular part of the common elements or association real property qualifies as such a change. Even changing the paint color on the building or the carpeting color or drapery fixtures in the social room can be considered material alterations.

Section 718.113(2)(a), Florida Statues provides that “there shall be no material alteration or substantial additions to the common elements or to the real property which is association property, except in the manner provided in the declaration as originally recorded or as amended under the procedures provided therein. If the declaration as originally recorded or as amended under the procedures provided therein does not specify the procedure for approval of material alterations or substantial additions, 75 percent of the total voting interests of the association must approve the alterations or additions.”

Although membership approval is then usually required for such alterations or additions, sometimes the declaration may only require board approval, which is typical when an owner is to make the alteration and pay for it himself. Also, if the alterations are incidental to the repair, preservation or replacement of existing improvements, a membership vote is probably not required. This would be the case when upgrading a building elevator to current codes which would require many material changes or changing the grade of the common elements to prevent flooding. Last, altering association property which is personal property as opposed to real property, such as changing out the furniture, lamps and paintings in the social room, would not be considered material alterations requiring a membership vote.

Once you have determined the approval necessary for the project itself, the next step is to determine how to pay for it and whether membership approval will be required for paying for the project.

The association could borrow the money and pay back the loan over years as part of an annual budgetary obligation charged to the owners as part of their annual assessments to be paid in regular quarterly or monthly installments. Most governing documents of condominiums allow the board to borrow money without membership approval because usually associations have to borrow money to pay for something quickly.

If the improvement does not need to be done until the following year, the board could just include the cost of the project in the next year’s annual budget and pay for the project utilizing the next year’s operating funds. Fourteen-day notice of the annual budget meeting must be mailed or hand delivered to each unit owner pursuant to Section 718.112(2)(e), Florida Statutes.

The association could, instead of borrowing the money or placing the cost in the next year’s budget, levy a special assessment on the owners to pay for the improvements. This method is usually preferred if time permits and the financial burden is not too great because then the association does not have to pay interest on borrowed money. Section 718103(24), Florida Statutes defines a special assessment as “any assessment levied against a unit owner other than the assessment required by a budget adopted annually.”

Many declarations will require membership approval for special assessments over a certain dollar amount or percentage of the annual budget as a check and balance on a board of directors to make sure the owners really want to be specially assessed for certain projects. Some associations will split the assessment into two or more amounts and due dates to assist their owners in preparing to pay for the unexpected costs.

If only board approval is required for a special assessment in a particular condominium, the board still needs to give 14-day notice in writing to the members of the board meeting wherein the special assessment will be considered and the specific nature of assessment as required in Section 718.112(2)(c), Florida Statutes.

If the board approves the levy of the special assessment, the specific purposes or purposes of the assessment needs to also be set forth in the written notice of the assessment that is sent or delivered to each unit owner. Once the project is completed, if there are any leftover funds, they can be kept in the association’s operating account, which then act as a credit toward future assessments, or the excess can be returned back to the unit owners pursuant to Section 718.116(10), Florida Statutes.

It is important for a board to obtain membership approval for material alteration capital improvement projects when required as well as obtain membership approval for paying for same by bank loan or special assessment if required. Even if membership approval is not required, members will be aware of the projects and costs thereof because of the 14-day statutory notice requirements for board meetings to approve the annual budget and special assessments. Thereby, the members can share their opinions on the projects at the meetings if they so desire.
Rob Samouce, a principal attorney in the Naples law firm of Samouce, Murrell, & Gal, P.A., concentrates his practice in the areas of community associations including condominium, cooperative and homeowners' associations, real estate transactions, closings and related mortgage law, general business law, estate planning, construction defect litigation and general civil litigation. This column is not based on specific legal advice to anyone and is based on principles subject to change from time to time. Those persons interested in specific legal advice on topics discussed in this column should consult competent legal counsel.