Elevator replacement - replacement or capital improvement?

Our elevators are 31 years old and we are replacing them. They were originally protypes and parts are scarce if available at all. A few members have hired an attorney and are trying to stop their replacement, claiming it's a capital improvement and approval of 75% of our owners are required.

Our board is responsible for the repair, maintenance, and replacement of all the common area and its elements ... including the elevators. This is spelled out in our Master Dees and By-Laws. Anyone else have a dispute like this? Any suggestions to prevent those from going forward?

You are replacing an existing worn out component of your building. You are not adding anything new. Ignore the naysayers and proceed. Once their attorney explains that they will need to pony up about $20,000 to commence an action to force a member vote, that they will have no upper limit to what they may have to expend, and no guarantee that if it goes to a vote that the members will not approve it.

There is another issue to consider: those who live on the upper floor(s) depend on the elevators and they would not have purchased their units had they not had elevators. Those who live on the first floor could care less about the elevators. Therefore, a vote about the elevators will pit the first-floor residents against the upper floors and there will inevitably be a lawsuit. If I were in your place I would take my chances with those who do not want to spend the money (and my first guess is they are all on the first floor) rather than live with neighbors suing each other over being able to get to their units.

If someone who relies on the elevator is handicapped (or at least claims to be), you then have the possibility of being sued by the Feds for violating the Fair Housing Act. You could be forced to make the repairs regardless of how the membership votes.

While all the lawsuits are flying back and forth, everyone's property values will drop to near-zero as no lender will finance a sale in that environment.

My advice would be to make these issues known to the members and inform them of all the consequences of ignoring the elevators and the consequences of owners suing the association and/or owners suing each other.

BTW, I hope you have money in reserve for this expense. In fact, having elevator replacement as a line item in the reserve budget would go a long way toward dispelling the idea that this is a capital improvement.

LarryB you have pretty much expressed my own thoughts on this, especially the safety issue as we are a 60 unit, 12 story condo complex in a resort area. I'm concerned they will pursue this especially when their attorney has stated he believes it is a Capital Improvement. He is not well versed in HOA law or the Horizontal Property Regime Code of Law. They don't appear in his listed field of expertise; civil litigation is. I'm trying to do some fact finding from other members who may have faced a similar situation and what their outcome may have been ...

Maggie I agree with Larry this is an upgrade of an existing building component. Not the installation of an entirely new element.

There are elevators currently in service and due to age and service issues they need to be replaced not held together with band-aids and used parts. This also poses a safety issue.

My suggestion go forward as planned and let the three naysayers put up or shut up.

Every property has a few you have found yours.

Good luck.

We also have two elevator 25 story (plus three garage levels) 14 y.o. buildings and put a LOT into reserves each year for "Elevators-major repairs."

Now if it occurred that both simply got too old and we had to replace them, it most certainly would not be a "capital improvement!" It's the replacement of a necessary common area component that everyone certainly expects to function, whig can no longer be repaired.

So, I'm with Larry, Jon, JohnC and (I think?) PitA. Your owners who disagree are getting uninformed legal advice. Your board has taken all of the right steps in informing your Homeowners.

It's exactly how we handled it when we had to replace the prematurely failing cooling towers on our roofs that make our individual AC (heat pumps) work before we even were sure we'd win our construction defect lawsuit. We took out a loan for emergency replacements to the tune of almost $1mil. (needed to hire a crane, etc.) (We did collect a nice settlement.)

Best of luck, Maggie, you're doing the right thing!

Per the State of New York Department of Taxation and Finance:

A capital improvement is any addition or alteration to real property that meets all three of the following conditions:

It substantially adds to the value of the real property, or appreciably prolongs the useful life of the real property.
It becomes part of the real property or is permanently affixed to the real property so that removal would cause material damage to the property or article itself.
It is intended to become a permanent installation.

Source: http://www.tax.ny.gov/pubs_and_bulls/tg_bulletins/st/capital_improvements.htm

Since the elevator is already there, it is not an addition or alteration to the real property and therefore not a capital improvement.

What does your own lawyer say about the situation? It's worth paying the very small amount (compared to cost of new elevators and potential future litigation) to find out and have a professional opinion from your own counsel.

Is it safe to assume that the decision to replace (as opposed to repair and upgrade) the elevators was based on extensive research and additional professional input? It's a huge expense for complete replacement so I can understand owners fighting it if the decision was made among the Board members without having done extensive research first.

Of course when we all hear about elevators, our minds race to safety issues and the elevator car racing down the chute. In reality, that's most likely not going to occur, so overstating "safety concerns" in the absence of professional input would be a mistake IMO.

Just some thoughts . . . good luck.

It's quite possible you have hit the nail on the head and the confusion that may be existing is the differences between 'capital improvements' and 'capital expenses'.

I will pass that info along to our 'accounting experts' as I'm dumber than a door nail when it comes to the ins and outs of accounting. Thanks!

All capital improvements require a capital expense.

NOT all capital expenses are capital improvements.

Replacing a worn out asphalt shingle roof with a similar roof is a capital expense.

Should you UPGRADE said roof to tile then the DIFFERENCE in cost would be a capital improvement.

If you replaced a relatively new shingle roof with a tile roof then it ALL would be a capital improvement.