Capital Projects

What counts as a capital project

Boards often assume a capital project is just an expensive repair. The clearer test, drawn from federal tax rules on capitalizing versus repairing property, looks at what the work does, not what it costs. Betterment, restoration, or adapting a component to a new use points toward capital treatment. Work you expect to do again and again, that simply keeps a component in its normal working condition, points toward maintenance.

"An amount is paid to adapt a unit of property to a new or different use if the adaptation is not consistent with your ordinary use of the unit of property at the time you originally placed it in service."

Source: Tangible Property Final Regulations, Internal Revenue Service

This is tax law, not an accounting standard, so ask your association's CPA how it applies to your own financial statements. The tool most boards use to find capital needs before they become emergencies is a reserve study, a periodic assessment describing itself as identifying "the components a community association is responsible for maintaining or replacing" and providing "a stable and equitable funding plan" for them. Related lesson: Maintenance vs capital project.

Five phases, one board

Every capital project moves through the same rough arc, whether it is a $15,000 gate motor or a $2 million balcony restoration: define what you need, choose who builds it, pay for it, run the contract, then close it out and hand off the paperwork. The lessons in this course are grouped that way below. Knowing which phase you are in tells you which decisions are still open and which are already locked in.

The rule is not the same everywhere

Almost every hard number in this course, when a board must competitively bid, how much a board can assess without a membership vote, what notice a special assessment requires, is set by state statute or by your own governing documents, not by industry norm. Florida requires competitive bids once a contract exceeds 10 percent of an HOA's annual budget, or 5 percent for a condominium association, while California imposes no statewide bidding mandate at all. Check your own state's statute and your CC&Rs before assuming either rule applies to you.

California caps a board's own authority to impose a special assessment at 5 percent of that year's budgeted gross expenses without a membership vote; Florida instead requires written notice tying any special assessment to its stated purpose, and restricts spending it on anything else. Confirm the vote threshold and notice rule in your own state and documents.

What most boards get wrong

Three beliefs come up often enough to name directly. First, that the board must take the lowest bid. Florida's own HOA statute says the opposite.

"Nothing contained in this section shall be construed to require the association to accept the lowest bid."

Source: Florida Statutes, section 720.3055, The Florida Senate

Second, that "substantial completion" means the project is finished. It means the space is usable and warranties start running; a punch list of remaining items follows as a matter of course, not as a sign something went wrong. Third, that a warranty protects the association indefinitely. Warranty length is set by the contract, and where a statute applies at all it is usually narrow, covering original construction of a dwelling, not a board-commissioned repair years later.