Capital Funding and the Law Funding the Big Fixes

From time to time, every co-op or condo community has to undertake big capital improvement projects—perhaps a total window replacement, roof repairs, an elevator overhaul, or major exterior renovations. 

The laws and regulations that deal with these processes—as well as the building’s own bylaws—  are often confusing. There are also plenty of steps to take before you can even begin work, such as dealing with contractors, architects and city bureaucracy, not to mention accountants and attorneys. Sometimes you'll have enough money in your reserve funds to cover these items, but at other times, you will need financing.

What Counts as Capital? 

To begin with, what kinds of projects qualify as capital improvements? Most board members know, or believe they know, the difference between capital budget items and operating budget items. But there are several, although overlapping, ways of looking at this.

Attorney Lisa Smith, a partner with the law firm of Smith Gambrell & Russell LLP in Manhattan, quotes the definition used by the New York State Department of Taxation and Finance, which states that a capital improvement must “substantially add to the value of the real property or prolong its life; 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 itself; and is intended to become a permanent installation.”


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  • Our condo board recently proposed a large loan for a capital expense. Bylaws stipulate monthly maintenance assessment based on size of the unit. This assessment includes maintaining a cash reserve for smaller projects. There is no bylaw that states how an additional capital assessment will be allocated. The board has previously made equal assessments to each owner regardless of the size of each unit. Is this legal or proper in NYS?
  • There are 66 families in our water system, we are under the by-laws of tennis and swim which is 178 families, the land and water is owned by tennis and swim but the 66 families under the original water system pays all expenses, The by-laws states any capital improvement over $5,000 requires the approval of 75% of the membership., however if a repair to our water system is needed and it is over 5,000, does it still require the same approval., We are looking at an emergency situation where the main pipe to our pump house is corroded and may burst at any time and in fact we have been on borrowed time, the T&S board is putting the water users in jeopardy as they say it is a capital improvement and needs approval , meanwhile if the pipe does burst, nobody can survive without water so what would happen then . Can anyone help me understand the difference between capital improvement and capital repair . Thank you , Nora Mongan