Board Spending Limit on 1 item - monthly service fees included?

Started by RobinB6 • 15 replies • 1547 views

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RobinB6 (California)
Posts: 38

Posted:

Hello... our Board has a $3,000 spending limit (the Board can spend $3,000 without majority HOA approval). If they are looking to purchase an item that costs $2,800, but then has a $40 monthly fee associated with it (i.e., service/phone fee, internet etc.) would the Board need to get majority HOA approval or can they simply note that the item itself is under the $3,000 limit? (With the $40/monthly fee, the first annual cost would be $3,280 -- over the $3,000 limit).

Our CC&Rs are silent on this topic (other than to say that the Board cannot spend more than $3,000).

Any insight would be appreciated.
Thank you.

DouglasK1 (Florida)
Posts: 2,046

Posted:

It would be helpful to get more details about the spending limit. I assume that the board is not limited to spending 3k per year total (that would be a pretty small budget), but that limit is for a given item. If it is per item, I would think a reasonable interpretation is per year, not forever. So 2800+480 would still fit.

Escaped former treasurer and director of a self managed association.

DouglasK1 (Florida)
Posts: 2,046

Posted:

Just to clarify, is that $40 monthly or $400 monthly?

Escaped former treasurer and director of a self managed association.

RobinB6 (California)
Posts: 38

Posted:

There is a $40/monthly service fee... so that would add an additional $480 cost to this one particular item. The total cost in year one would be $2,800 + $480 = $3,280 (which is obviously above the Board spending limit). Going forward, there would be a $40/monthly fee.

RobinB6 (California)
Posts: 38

Posted:

If the $3,000 limit is for the full year, this expense exceeds that since it would be $3,280.

MelissaP1 (Alabama)
Posts: 13,836

Posted:

Is this for the board benefit or for the entire HOA? For example... The board enters a contract with a handyman service. They agree to pay them 2900 deposit and then it will be a $50 a month service fee to do repairs. Now that is a benefit for the whole HOA.

What I get is that the HOA can sign contracts up to 3K without asking for the HOA members approval. If that is the case, then I believe the maintenance fees should be dropped out of the overall expense. That is because I call it the initial expense incurred. Now if the maintenance fees can't be maintained throughout the year with the dues paid, then I would have an issue with this. It's the maintenance fee that will need to be fly in the ointment if your HOA doesn't collect enough monthly to keep it.

Former HOA President

NpS (Pennsylvania)
Posts: 4,216

Posted:

Depends on what the deal was.

Example 1: $2,800 is actual cost of equipment. $40 per month is normal price for servicing the equipment.

Here, I assume that your board is treating the $2,800 purchase as a Capital Expenditure and the $40 service fee as an Operating Cost. It's fairly common practice.

If your docs don't say anything more than there's a $3k limit, then it's up to your board to interpret if the $3k limit applies only to the Capital Expenditure (which is probably what they intend to do).

Example 2: $3,500 is actual cost of equipment. $40 includes normal price of servicing ($15 per month) plus payment plan for the extra $700 in equipment cost ($25 per month).

In this case, they should have treated the full $3,500 as the Capital Expenditure. Should have required a homeowner vote.

Sikubali jukumu. Read all posts at your own risk.

RobinB6 (California)
Posts: 38

Posted:

Most would argue it is for the overall good of the HOA. It is for a security system for the building whereby the surveillance cameras/equipment are @ $2,800 and then they need to sign up for a $40/monthly fee with the wireless carrier so the Board members can access the video feeds etc. on their computers/phones etc. (But some HOA members do not support this and would argue it is unnecessary and not for the overall good etc.).

Thanks for your insights.

RichardP13 (California)
Posts: 3,868

Posted:

Robin

In California, a special project as you described would only require the vote of membership IF the dollar amount exceeded 5% of the annual expense of the HOA.

So let's say the annual expenses were $50000.00, anything over $2500.00 would require the members to approve.

NpS (Pennsylvania)
Posts: 4,216

Posted:

Quote:

Posted By RobinB6 on 04/01/2016 2:42 PM
But some HOA members do not support this and would argue it is unnecessary and not for the overall good etc.

They can argue all they want - But if the docs are open to interpretation, then it's the board that gets to do the interpreting, not the individual homeowners.

Sikubali jukumu. Read all posts at your own risk.

KerryL1 (California)
Posts: 14,550

Posted:

Following Richard's approach, Robin, please provide the exact citation about this $3,000. And where is it if not in your CC&Rs? Bylaws?

What size is your HOA?

TimB4 (Tennessee)
Posts: 21,059

Posted:

An argument could be made that those are two different items.

Invoice 1 - Installation/equipment - $2,800
Invoice 2 - Service fee

RobinB6 (California)
Posts: 38

Posted:

That's the question Tim... are they considered two separate items or one combined item (since #2 is only being incurred to service #1)? Thanks for your help.

JohnC46 (South Carolina)
Posts: 14,265

Posted:

Robin

Can we assume your root issue is you are against the project versus the extra $280.00 expenditure?

If it was me and I wanted the project bad enough, I would personally pay the $280.00.

SheliaH (Indiana)
Posts: 6,964

Posted:

I would think this should be per item, as a maintenance/service fee would probably go under another line item as a routine expense that would be covered under the monthly budget.

Maybe it’s just me, but having to go to the homeowners every time you need to spend over $3000 seems unwieldy. I'm sure the intent of the CCRS was to prevent unnecessary spending, but there are other ways to do that. You don’t say how big your HOA is or what the association is responsible for, but it would seem it could easily spend over $3000 on any one maintenance /replacement project nearly every month – having to stop and poll the homeowners every time can end up wasting time and then by the time everyone comes to an agreement, the cost may go up anyway. Depending on what the association has to cover and what your reserve study says, you may want to consider another criterion that would require homeowner approval and ask homeowners to vote on amending that portion of your CCRs

If it is not right do not do it; if it is not true do not say it. Marcus Aurelius

JohnC46 (South Carolina)
Posts: 14,265

Posted:

Shelia

I think there are several things at play.

1. The electronic gate was not budgeted for and her BOD seems limited to no more than an unbudgeted expenditure of $3,000.00. Depending on the size of the association, this $3K limit could be a wise safeguard.

2. The OP is against the project regardless of the cost so she is seeking ways of stopping it thus her posts could be slanted.

3. A non-budgeted expense limit is fine as long as budgeted items in excess of it do not need to be approved each time. As an example: a $3K limit but $4K already budgeted monthly for landscaping would not require approval each month to spend the $4K.

4. Many HOA's call for voting if a Capital Improvement. Also as the item in question is a security gate that would affect all, it would be wise to call for a vote to see where people stand.

5. We have a spending limit of $1K per member of the BOD if not budgeted but no limit on an emergency. We recently had an emergency that cost us $7K and the BOD authorized it via a phone call meeting.

It is wise to have some spending limits.

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