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CONDO AND COOP RULES OF THUMB: CAPITAL IMPROVEMENTS

Real Property

Capital improvements are construction projects that enhance your property’s overall value, and/or extend the useful life of the property, such as installing a new roof or upgrading plumbing or wiring.  These projects tend to be more expensive and extensive than standard repairs, which usually constitute work that is necessary to restore a property to operational condition, and can be something as simple as repainting, fixing leaking faucets, changing locks or replacing broken windows.

Typically, these larger projects are paid for by special assessment.  If your building has a reserve, the project may be paid for out of that reserve.  Otherwise, the cost will be allocated to each unit-owner or shareholder.  Most by-laws have a provision stating that if a particular special assessment would be less than a certain amount, the board can pass a resolution approving the project without seeking unit owner approval.  If, however, the special assessment is over that amount, the board must then seek unit owner approval.  Like monthly common charges or maintenance fees, special assessments are allocated to unit owners based on their proportionate share in a condo or based on the number of shares per shareholder in a coop.

While this may seem fairly straight forward, issues arise.  If, for example, the project your condo or coop is embarking on is to replace something that benefits each unit owner equally, such as replacement of the intercom in each unit, the larger unit owners or shareholders may balk at paying a proportionate share.  Another problem arises when addressing what materials will be used to complete the capital improvement.  If the desired materials push the cost of the project over a certain amount and that amount requires unit-owner approval, you may face dissension in the ranks.  As one New York County Supreme Court judge puts it, if you want a Chevy, the board can approve it.  If, however, you want a Cadillac, you need the unit owners to agree.  To further complicate things, there may be instances when you are dealing with more than just the Department of Buildings, such as when performing work on a landmarked building.  The building’s status will probably require that certain, more expensive materials be used to complete work.  Even with the landmark’s requirements being clearly laid out, you may have unit owners who refuse to pay their shares, forcing the building to commence litigation.  Before engaging in one of these larger scale projects, check your by-laws, and verify the building’s status.  As there may be a tax benefit to categorizing the work a certain way, be sure to also check with the building’s accountant.  You may not save your building the cost of the project, but you may find a tax break that will save the building money in other ways and make the cost of the work easier to swallow.

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