Clubhouse Refurbishment

Started by LesW • 10 replies • 1470 views

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LesW (Florida)
Posts: 5

Posted:

Our HOA Master Board in Florida would like to refurbish our Clubhouse since in my opinion it is rather "dated'" Almost all the "involved" members of the community totally agree with this. No walls would be changed; involved would be replacement furniture, decorating, painting, fixtures, and wall coverings.

Our lawyer has indicated that since they say there is no capital improvements involved, the Board could vote for an assessment, which they have done since there isn't enough money in our reserve account. Less than 1/2 of 1% of the homeowners object to this assessment, without a total vote of the community. They say that there is a capital improvement involved, and this would require a vote of the total community. It looks like they will now sue the Board for an assessment without a vote of the community.

Has any communities out there in Florida had such a problem? Just what is considered a capital improvement?

NpS (Pennsylvania)
Posts: 4,216

Posted:

Preliminary questions:
Have you had a reserve study done? How recently? Are any of the items that you are talking about listed as components in the reserve study?

Sikubali jukumu. Read all posts at your own risk.

LesW (Florida)
Posts: 5

Posted:

We had a reserve study about 2 years ago. The refurbishment was planned a couple years from now, but since it is so dated, most people want the refurbishment done this year. We also only reserve for 55% so that is another reason for the assessment.

NpS (Pennsylvania)
Posts: 4,216

Posted:

Quote:

Posted By LesW on 01/16/2016 10:44 AM
Our lawyer has indicated that since they say there is no capital improvements involved, the Board could vote for an assessment, which they have done since there isn't enough money in our reserve account. Less than 1/2 of 1% of the homeowners object to this assessment, without a total vote of the community. They say that there is a capital improvement involved, and this would require a vote of the total community. It looks like they will now sue the Board for an assessment without a vote of the community.

When your lawyer said that a member vote wasn't needed, he relied on the Board's statement that it doesn't involve a "capital improvement." But if these things were listed as components in a reserve study, they are "capital improvements" by definition.

No matter how small in numbers, those who object might be on solid footing. Should probably give the info about the reserve study to your lawyer and see what he says.

Sikubali jukumu. Read all posts at your own risk.

LarryB13 (Arizona)
Posts: 4,099

Posted:

Quote:

Posted By LesW on 01/16/2016 10:44 AM
It looks like they will now sue the Board for an assessment without a vote of the community.

Assuming they could find an attorney to take the case, such a lawsuit would cost them a minimum of $20,000 with no upper limit. Since there is no guarantee of winning their lawsuit, this is high-risk on the part of the dissidents. Your lawyer has already advised the HOA that there is no requirement for a member vote so this is not a slam-dunk for the naysayers. They face the very real possibility of paying all of their own costs, the HOA's costs, plus still be liable for the assessment.

Quote:

Just what is considered a capital improvement?

It's an improvement to an existing capital asset or construction of a new capital asset. Buildings are capital assets. Adding square footage would be a capital improvement. Altering the structure of the building would be a capital improvement. I do not believe that any of the work you describe would be considered a capital improvement.

Some of the work you described is to replace personal property, namely furniture. The other work you describe (decorating, painting, fixtures, and wall coverings) is essentially routine maintenance. None of that would normally be regarded as a capital improvement.

PitA
Posts: 1,416

Posted:

Do not confuse 'capital improvement' (upgrade) with capital expenditure.

Any replacement of 'worn out' common elements requires a capital expenditure (preferably from a reserve fund as opposed to a special assessment).

Replacing aa 'asphalt shingle' roof with a new 'asphalt shingle', or equivalent equal, roof due to age would require a capital expenditure.

The DIFFERENCE in price between a simple replacement and an upgrade to a tile roof would be a 'capital improvement'.

I am NOT splitting hairs. The inability to state facts accurately using proper terminology is a MAJOR issue with volunteer operated corporations and leads to much of the strife and confusion.

ps. we do NOT pay (voluntary) dues, we pay contractually mandated assessments

GenoS (Florida)
Posts: 4,276

Posted:

Quote:

Posted By PitA on 01/16/2016 12:21 PM
The inability to state facts accurately using proper terminology is a MAJOR issue with volunteer operated corporations and leads to much of the strife and confusion.

The first step on the path to wisdom is calling things by their proper names. I saw somewhere recently that that was actually said by Confucious, and I agree with him, and with PitA, totally.

Our board consistently refuses to call our annual insurance premium a "special assessment" even though that's exactly what it is according to both our CCRs and our annual financial report. The reason they like to pretend it's something else is that they don't want to go to the trouble of calling an extra special board meeting every year to enact it once they have obtained the final numbers on the policy.

Using the wrong terminology is a red flag for me since, at the very least, it demonstrates ignorance, and ignorance can be very expensive.

NpS (Pennsylvania)
Posts: 4,216

Posted:

Quote:

Posted By LarryB13 on 01/16/2016 11:29 AM
Assuming they could find an attorney to take the case, such a lawsuit would cost them a minimum of $20,000 with no upper limit. Since there is no guarantee of winning their lawsuit, this is high-risk on the part of the dissidents. Your lawyer has already advised the HOA that there is no requirement for a member vote so this is not a slam-dunk for the naysayers. They face the very real possibility of paying all of their own costs, the HOA's costs, plus still be liable for the assessment.

Unsupportable conclusions. $20k to file a claim. I don't think so. Oh, I see - you're talking about the cost of taking this to trial? My guess is that would be at least a year away. And since their objective is to delay, a year doesn't bother them at all. Re your claim that they're at risk because there's no "guarantee of winning" - that could be say of any litigant in any trial anywhere. Meanwhile, if a lawsuit is filed, the project doesn't get started for at least a year at the earliest. And that's only a year less than the reserve study calls for. But they're only 55% funded anyway, so this thing can take a long time to work its way through the courts and the funding decisions that need to be resolved. As far having to pay for the other side's costs is concerned, it depends on 3 things - (1) going to trial (less than a 3% chance), (2) losing (a 50%) chance, and a judge deciding to award the fees (a 25% chance). My math says that the chance is less than 1/2 of 1% that those who object will have to pay the HOA's legal fees.

Quote:

Posted By LarryB13 on 01/16/2016 11:29 AM
Some of the work you described is to replace personal property, namely furniture. The other work you describe (decorating, painting, fixtures, and wall coverings) is essentially routine maintenance. None of that would normally be regarded as a capital improvement.

Again, unsupportable conclusions. Furniture is personal property (because it isn't real property and anything that isn't real property IS personal property), but that has nothing to do with whether it's a capital asset. The capital asset question is driven by whether the expense is for something that will typically last more than a year. A computer is personal property, but it would also be classified as a capital asset.

There are so many different possibilities on how things can be classified. We shouldn't jump to the conclusions when we don't know enough about the classification system that the OP's HOA uses. I would rely on the contents of a reserve study done by someone who investigated the particulars here - but not generalizations based on general descriptions.

Sikubali jukumu. Read all posts at your own risk.

NpS (Pennsylvania)
Posts: 4,216

Posted:

To Pita and Geno
Your statements are in response to a second- or third-hand description by the OP. We don't know what was actually said or how it was interpreted.

For purposes of the OP's questions, the distinction between "capital improvement" and "capital expense" is not really significant. The real question is whether the acquisition would be treated as a "capital asset." And the first place to look is the reserve study.

Re the inability to state facts accurately, that's a problem that many boards have and that many posters have in their initial post. Hopefully, the OP will take the opportunity to investigate and come back with greater detail and accuracy.

Sikubali jukumu. Read all posts at your own risk.

KerryL1 (California)
Posts: 14,550

Posted:

I'd like more details too from Les. A Letter from the HOA attorney would be better than the attorney "indicating."

HOAs do repair or replace reserves components early (& late). HOAs repair & replace reserves components when their reserves are not 100% funded.

A different matter is the special assessment. Your own documents or state law may set limits on how much a special assessment can be without an owner vote.
I think you want your attorney to write advice about that too, unless it's a very clear cut topic.

Are you on a board, Les?

RichardP13 (California)
Posts: 3,868

Posted:

Based on the OP statements, I don't believe this is an capital improvement, it is replacing components identified within a reserve study. If it was an upgrade, then the difference would probably be considered an capital improvement.

Not sure about Florida statues on this matter, but in California, membership approval is required only if the capital improvement or special assessment is OVER 5% of the annual budgeted expenses of the associations.

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